Greenhouse Vegetables Harvest Grew by Almost 14% in Russia

As of November 28, gross harvest of greenhouse vegetables in Russia was 690,100 MT, which is 13.6% more than in the same period last year (to compare – in 2016 it was 607,100 MT) as it was reported by the press service of the Ministry of Agriculture of the Russian Federation.

450,200 MT of cucumbers were harvested (in 2016 – 409,400 MT) and 229,000 MT of tomatoes (in 2016 – 182,500 MT). The yield of other vegetable crops was 10,900 MT (in 2016 – 15,200 MT).

The leading regions in the production of greenhouse vegetables are Krasnodar region (82,000 MT), Stavropol region (61,000 MT), the Republic of Tatarstan (41,700 MT), the Republic of Bashkortostan (39,200 MT), and Lipetsk region (33,700 MT).

Russian Economy Minister: Russia’s Budget Deficit not to Exceed 2% of GDP in 2017

Russia’s budget deficit will amount to around 2% of GDP or even less by the end of this year, Economic Development Minister Maksim Oreshkin said Wednesday.

“Despite oil prices falling to around $40 per barrel, budget deficit will be less than 2% (of GDP) this year,” he said.

According to Oreshkin, the country’s economy is on the rise. “What is being discussed now is the issue of economic growth. Global organizations and we expect (GDP) growth of roughly 2%,” he said.

The Russian government and the Central Bank are already implementing a number of measures aimed at reaching higher growth rates, the minister said. “Two years ago inflation was above 12% whereas today’s inflation is within the range of 2.6%,” he said.

Russia’s Economy Is Growing With Borrowed Money

Without any new ideas from a technocratic government constrained by President Vladimir Putin’s apparent indifference, the Russian economy is once again relying on consumers, who are borrowing more to buy real estate and imported products. The growth is real, but it’s also meager. And it will be hard to sustain without bigger changes.

On Monday, Rosstat, Russia’s official statistics agency, announced that the country’s gross domestic product increased 1.8 percent year-over-year in the quarter than ended in September. That’s lower than Bloomberg’s consensus forecast of 1.9 percent and slower than the 2.5 percent increase in the previous three months. The oil price jumped 20 percent during the quarter, but the economic statistics won’t pick up the related growth until the fourth quarter. So far this year, the Russian consumer deserves most of the credit for the growing economy. After suffering through three tough years — during which time oil tanked and the ruble devalued sharply — they are buying things again. Unfortunately, most of the things Russians are buying aren’t made in Russia.

The stability of the ruble (it has gained about 1 percent against the U.S. dollar so far this year) and low inflation (the Bloomberg consensus forecast is for it to fall by almost half to 3.8 percent this year) have helped boost consumers even though real disposable incomes dropped throughout the quarter. Households are choosing to get more leveraged.

In 2015 and 2016, household debt went down as interest rates and bad loans shot up. By the end of 2016, some 20 percent of consumer loans were non-performing, according to the Central Bank. Banks that had issued them rolled up their programs and viewed borrowers with increased suspicion. This year, however, the Central Bank has lowered its key rate from 10 percent to 8.25 percent, and banks couldn’t resist the temptation to offer more funds to private borrowers. With mortgage rates at a historic minimum and consumer loans affordable again, Russians have some convincing reasons to warm to the idea of borrowing.

The Central Bank claims it isn’t worried because consumer borrowing has only been increasing by about 2.5 percent of the monthly retail trade turnover — not enough, by its analysts’ reckoning, to drive up inflation. Russian banks have a total mortgage portfolio of some 5.5 percent of GDP, compared to 20 percent in Poland. There are, however, signs that the Central Bank sees a bubble in the making, at least on the mortgage market. Starting this month, it has required drastically higher reserves against mortgages with a down payment below 20 percent.

Apart from the lack of income growth, which makes any debt increase risky, the Central Bank is facing another problem. In recent months, it’s had to take on two large banks — Otkritie and B&N — with a combined balance sheet hole of at least $12 billion. Private Russian banks find it difficult to compete with state behemoths Sberbank and VTB without taking on too much risk. More failures would stretch the central bank’s resources.

The state banks, hit with Western sanctions and thus deprived of the cheap Western loans that fueled the previous loan boom in the 2000s, have problems of their own: They are short of liquidity. VTB would have run into trouble in the third quarter without massive government deposits.

Russia needs better growth sources than household borrowing. The government has counted on private investment growth, which was unexpectedly robust in the second quarter. But for more investment to materialize, Russia needs to develop more export competences, the way it has done with agricultural commodities such as wheat. High oil prices have historically discouraged that sort of diversification, and crude, at more than $63 per barrel, is much more expensive than the $40 the Russian government budgeted for this year. It’s even high enough for the country to start pouring money back into its reserve funds.

Russian President Vladimir Putin has always been extraordinarily lucky. The Russian economy has returned to growth and consumers have been reassured by low inflation and a stable currency just as he prepares to run for a fourth term in office next year. But sustaining even this small level of growth for another six years without structural change will be a challenge. Putin has shown little interest in explaining how he’s going to tackle it, focusing more on the complex geopolitical game he’s been playing. Whether that game is tactical or strategic, the Russian economy is in dire need of a coherent strategy as it continues coasting along on a mixture of hope, luck, oil and grain.

Russia’s X5 Retail Group Opens Trade Office in Hong Kong

Russia’s X5 Retail Group has opened its first overseas sales office in Hong Kong, the company said in a press release.

X5 is also considering opportunities to establish similar trade offices in Central Asia and South America.

“A permanent presence in Hong Kong, the business getaway to South-Eastern Asia, will enable X5’s procurement team to improve purchasing terms and build up the share of direct imports in a number of product categories, primarily fruit, vegetables, seafood and non-food goods,” the company said.

“In 2017-2018, X5 intends to establish direct imports from another six countries – Bosnia, Mexico, Namibia, Madagascar, New Zealand and Iran. The Company is open to cooperation with producers from other countries looking to tap into the Russian market and is ready to offer favorable procurement terms,” the company said.·

In 2017, the number of countries where X5 has direct relationships with suppliers reached 27. Direct imports already account for almost 50% of supplied fruit and berries. In the 18 months after the launch of the direct import programme, the total number of direct suppliers reached 200.

X5Retail Group is one of the leading Russian food retail companies. The company manages the stores of several retail chains: neighborhood stores under the Pyaterochka brand, supermarkets under the Perekrestok brand, hypermarkets under the Karusel brand, Express-Retail stores under various brands.

As of September 30, 2017, the company operated 11,326 stores.

Net profit of X5 under the international financial reporting standards for the 9 months of 2017 increased by 30.7% compared to the same period of the previous year, to 25.97 billion rubles ($439 mln). Revenue reached 933.3 billion rubles ($15.7 bln), which is 26.2% up year-on-year.

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.