Moscow expanded sanctions

Expanding the list of products under food embargo against the West in the Russian government explained the desire to close the grey import schemes of the sanctions. This was stated by Deputy Prime Minister Arkady Dvorkovich on October 27.

“We have thus closed the gray supply channels, which were used for deliveries of some goods under the guise of others and caused damage to Russian manufacturers”, — has explained Dvorkovich. According to him, such schemes are typically used in the supply of offal meat and live pigs.

At the same time to impose sanctions against purebred breeding pigs, the government did not, to preserve the possibility to create high-performing pig farms in Russia.

Earlier on 27 October, Russia expanded sanctions against Western countries. The ban includes live pigs and pork from EU countries, USA, Canada and some other countries. Also the ban includes pork and poultry fat of cattle, sheep, goats, and animal oil.

The Russian government stated that the food ban was extended till December 31, 2018.

Turkish Tomatoes Going to Russia from 1 November

Four Turkish tomato exporters have been granted permission to export to Russia. Russia has, however, set a quota limit of 50,000 MT for the export of Turkish tomatoes.

According to the Russian Minister of Energy and Vice Chairman of the Russian-Turkish intergovernmental Commission, “The decision was taken to amend the regulations, thus granting four companies permission to ship 50,000 MT of tomatoes to Russia.” The first Turkish tomatoes should arrive in Russia since 1 November.

Russia banned the import of vegetables and fruits from Turkey on January 1, 2016, after the Russian-Turkish conflict over a Russian Su-24 plane. Restrictions were lifted gradually, only the import of Turkish tomatoes remains under the ban. Until January 1, 2016, they had the biggest share of Turkish vegetable exports to Russia – 360,000 MT a year.,

Russia to Strengthen Controls over Fruit and Veg Imports from Three CIS Countries

The Russian Federal Service for Veterinary and Phytosanitary Surveillance (Rosselkhoznadzor) reported that due to the increased attempts to supply banned products via Armenia, Azerbaijan and Belarus, the control over the import of fruits and vegetables from these countries will be strengthened.

According to the service, products from third countries are allegedly supplied to Belarus, Armenia and Azerbaijan and then attempts are made at re-exporting them under the guise of products produced in these countries. The monitoring will be particularly strict in the case of tomato shipments, as each single lot will have to contain information about the producer.

Russian Price Gauge Falls

Russia has done so well in vanquishing inflation that it pushed the core index of consumer prices to the cusp of falling below its level in the U.K. for the first time. While the Bank of England is under pressure to act after core inflation accelerated to the fastest since 2011, the same gauge reached a new historical low in Russia. Data released on Thursday showed Russia’s index of consumer prices that strips out volatile components such as food and energy slowed to an annual 2.8 percent in September from 3 percent a month earlier, according to the Federal Statistics Service. In the U.K., it jumped to 2.7 percent in August.

The Bank of Russia, which has delivered four rate cuts in 2017 by a cumulative 150 basis points, last month left open the possibility of pauses as well as decreases of a quarter to half a percentage point as it charts the way forward. Given that the central bank still sees inflation expectations as elevated and unanchored, it will “attach greater significance to pro-inflationary risks than factors acting in the opposite direction,” according to Governor Elvira Nabiullina.

“Core inflation is collapsing as the disinflationary forces generated by the recession in 2015-16 intensify,” said Neil Shearing, chief emerging markets economist at Capital Economics Ltd. “Against this backdrop, the incessant focus of policy makers on the need to anchor inflation expectations and thus easing policy only gradually looks increasingly misplaced.”

The central bank will cut its 8.5 percent benchmark to 8 percent by the end of the year, according to the median of forecasts in a Bloomberg survey.

Russia’s headline index of consumer prices reached 3 percent in September from a year earlier after already slowing to a record of 3.3 percent in August. The median of 15 estimates in a Bloomberg survey was for a gain of 3.1 percent. It remains within the central bank’s target of “near or around” 4 percent.

“The low core inflation rate shows the decline in pressure on overall inflation,” Vladimir Tikhomirov, chief economist at BCS Financial Group, a Moscow brokerage, said by phone before the data release. “There’s no pressure on prices from the side of consumption, which is reflected in both the core and headline indexes.”

The bad news for Russia is that the outsized role of fruit and vegetable prices in shaping inflation expectations means the core index is of less value for the central bank. While food accounts for almost 40 percent of Russia’s consumer-price basket, it’s closer to 10 percent in developed economies such as the U.K.

“Food prices play a key role in setting inflation expectations,” said Vladimir Miklashevsky, senior economist at Danske Bank A/S in Helsinki. Core inflation “won’t have a big impact on the consumer and monetary policy, as the key indicators for the Bank of Russia are the consumer-price index and inflation expectations.”

Still, the historic deceleration in Russian inflation to less than a fifth its level two years ago — and the even faster decline in the core index — shows how much headway policy makers made in keeping price pressures in check as they maintain a “moderately tight” stance. On an annual basis, core inflation peaked at 17.5 percent in March 2015.

“Such record lows for core inflation create a reserve for the central bank” in case of a price pickup “against the background of further recovery in consumption and an expected increase in wages for state employees at the start of 2018,” said Dmitry Polevoy, chief economist for Russia at ING Groep NV in Moscow.

The core measure is among the indexes the Bank of Russia uses to analyze trends in prices, allowing it to assess inflation “without the noise,” according to its draft policy guidelines for the next three years. Its other tools include inflation gauges that strip out the cost of housing utilities, fruit and vegetables, as well as state-administered tariffs and other regulated prices.

Inflation may be close to reaching a “floor,” according to Nataliya Shilova, chief analyst at B&N Bank PJSC in Moscow, who predicts the ruble will weaken in the fourth quarter. The ruble, which has gained 6.6 percent against the dollar this year, traded 0.3 percent stronger at 7:26 p.m. in Moscow.

“Of course, a downward deviation of more than one percentage point is significant, but according to our estimates, inflation will return to 4 percent in 2018,” she said before the data release.

Russia Lifts Remaining Restrictions on Agricultural Imports from Turkey

Russia lifted the remaining restrictions on imports of agricultural products, raw materials and food from Turkey in June. In addition, Russia lifted restrictions for charter flights to the country. In September, Russia resumed imports of pomegranates, peppers, lettuce, iceberg lettuce, squash and pumpkins from Turkey. To crown it all, during the meeting in Ankara, Putin promised to lift the restrictions on imports of Turkish tomatoes.

Retailer “Lenta” opened its 200th hypermarket in Russia

Retailer “Lenta” opened its 200th hypermarket in Russia, as it was stated in the company’s website.

The hypermarket is located in Astrakhan. This is the second “Lenta” store in the city and the ninth hypermarket opened by the company in Russia in 2017.

The retailer plans to expand its presence in the Southern Federal District, as Jan Dunning, CEO of Lenta, said.

Russia Considering Reduction of VAT on Fruit

The Russian Ministry of Agriculture has proposed the introduction of tax incentives for Russian fruit producers. According to the head of the Ministry of Agriculture, Alexander Tkachev, the reduction of VAT by eight percentage points would reduce the flow of imported fruit into Russia. According to the Ministry, agricultural product prices have every chance of falling by more than 15% by the end of September, and “in five years we could be able to stop the import of basic fruits, like apples, pears and grapes.”

Currently Russia buys several varieties of seasonal grapes from the former USSR republic of Uzbekistan, as well as in Latin America (Chile and Argentina). The purchase of apples is made in Serbia, Moldova and Belarus. Pears on Russian shelves come mostly from Lebanon, Morocco and Turkey. In the first six months of 2017, the country was supplied with about 500,000 MT of apples, which is 30% less than in the same period last year.

Russians are now consuming fewer imported fruits and vegetables, according to the Ministry of Agriculture. In fact, after the ban on the import of agricultural products from the European Union, the share of foreign fruits delivered to Russia declined by more than 50%, while the acreage in the country has increased by more than 40% over the last two harvesting seasons.

According to statistics from the Ministry of Agriculture, in 2016, a total of 14,600 hectares of new plantations were set up. In the same year, the Russian authorities allocated about 2.2 billion roubles for investment projects aimed at expanding the acreage. The cost of setting up one hectare can vary from 400 thousand to 3.5 million roubles, depending on the terrain and varieties planted. In 2017, the area of ​​new plantations will reach 15,600 hectares.

The potential to reduce prices for fruit and vegetable products in Russia in the coming months is about 15%, according to the authors of the report “Inflationary picture in July”. In the summer months, vegetables and fruits have already become 7.5% cheaper.

European Union Extends Sanctions Against Russia over Ukraine

The European Union has extended sanctions by a further six months against dozens of Russian citizens and companies deemed to have a role in threatening the stability and independence of Ukraine.

EU headquarters said Thursday the restrictive measures have been prolonged until March 14 and now apply to 149 individuals and 38 entities. It said the sanctions are in response to “actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine.”

The EU first imposed the sanctions after Russia annexed Ukraine’s Crimean Peninsula in 2014 and supported pro-Russia separatists fighting Ukrainian forces in Ukraine’s east.

The bloc has repeatedly extended the sanctions as the conflict continues. A 2015 peace deal helped reduce the scale of fighting, but violence continues.

Chinese Fruits and Vegetables Dominate Sales in Russia

Three years ago Russia implemented punitive measures against European countries and the United States of America. Later they also carried out sanctions against Turkish products. Against this background, Chinese fruits and vegetables have started occupying sales counters in Russia. According to the customs office of the Russian Federation, Chinese fruits and vegetables had only held 9.6% of the market shares in Russia, but this has grown by almost 20% in the first half of this year. The Chinese potential is huge.

Due to the climate and the use of all kinds of technologies, the crops grown in China are more abundant than those of many other countries. The produced vegetables and fruits respectively take up 60% and 30% of the global output. Only for potatoes, the yearly Chinese output has reached up to somewhere between 60 million and 70 million tons, which is more than twice the output of Russia itself. Many sorts of Chinese products have started increasing their market shares on the Russian market, among these is the Chinese cabbage’s increased from 25% to 39%. Some products have nearly monopolized the Russian market. Garlic, for example, holds 80% of the market share. Currently, Russian importers have been paying more and more attention to Chinese products.

Cheap prices are one of the main reasons why Chinese goods are becoming increasingly popular. Chinese producers can provide cheaper products than competitors in other countries. As a matter of fact, the amount of Chinese products crossing Russian sales counters is a lot larger than was indicated by the customs office. In the most recent 10 years, Chinese people have started growing large amounts of vegetables within the Russian borders. The main Chinese plantations are located in Siberia or in the region around the Ural mountains. Chinese communities can be found throughout almost all agricultural regions in Russia. The output of these farms that are operated by Chinese growers is a multiple of the output of farms in China, but the price for products is a lot lower.

Reuters: Russian Economic Growth Upgraded, Inflation Seen Slowing

Russia’s economy is seen growing slightly faster this year than previously and inflation is seen slowing, a Reuters monthly poll of economists showed on Thursday.

The median forecast of 20 analysts and economists polled by Reuters in late August was for Russian 2017 gross domestic product (GDP) growth of 1.7 percent, above last month’s call of 1.4 percent.

Even though Russia’s economic outlook has improved, the poll’s median forecast is still below the economy ministry’s forecast of 2.1 percent this year.

Russia’s economic prospects could improve further, however, if the central bank cuts lending rates as analysts expect.

Respondents said the conditions were now right for the central bank to trim the key rate, now at 9 percent, at its next board meeting on Sept. 15.

A resilient rouble and steady oil prices have given the central bank room for a rate cut, analysts at Bank St Petersburg said in comments with their forecasts.

The central bank is now widely expected to trim the key rate to 8.75 percent next month, taking it to 8.25 percent by the end of the year, the poll showed.

“There are the conditions for a further rate reduction, and a step of 25 basis points is optimal,” said VTB economist Alexander Isakov. “It insures the central bank against overshooting the trajectory which leads to 4 percent inflation.”

The Reuters poll showed 2017 consumer inflation at 4.1 percent, compared with last month’s forecast of 4.2 percent.

This marks a slowdown of nearly 17 percent from early 2015.

Now, when headline inflation has already hit a post-Soviet low of below 4 percent, the central bank may embark on monetary easing cycle after keeping rates on hold since in July, the economy ministry predicted.

Russian Economy Minister Maxim Oreshkin said earlier on Thursday he expected consumer inflation to reach 3.5-3.7 percent by the end of the year.

“We think this would be among the factors that open the door for monetary policy easing by the central bank,” he said.

The poll also showed that the rouble is seen trading at 61.60 versus the dollar in a year from now RUB, slightly weaker than the 61.00 forecast last month.