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.

EU Fruit Still Slipping into Russia Despite Sanctions

Despite ongoing sanctions imposed by Moscow on fruit and vegetables from European Union countries in response to EU measures banning the sale of produce from Russia, large quantities of fruit such as nectarines and peaches from the bloc’s warmer member-states, including Greece, Italy and Spain, are reaching Moscow shelves in a steady supply, with Belarus-based middlemen seen as the prime suspects in the illicit trade.

Belarusian traders are suspected of slipping through the sanctions net and passing off Mediterranean fruit exports as their own – likely with the assistance of Russian officials.

Initial reports of a doubling of Belarus exports of nectarines and peaches to Russia failed to raise eyebrows, even though the landlocked Eastern European country is not a major producer of either fruit.

It later became apparent that produce hailing from Italy and Spain was reaching the Russian market.

Recent reports have indicated that traders with links to the Russian market are sweeping through northern Greece, a key crop-growing region, and buying large quantities of fruit including nectarines and peaches.

A recent survey conducted by Kathimerini confirmed that Greek produce is widely available at retail outlets in the Russian capital.

Russia largely depends on imports for its fruit and vegetable supply.

Last year, the authenticity of trade documents certifying the origin of products exported by Belarus had been questioned by Russian officials.

Despite the EU-Russia sanctions, Greek traders are well aware of the fact that it is still possible to export to the Eurasian Economic Commission (EEC), a five-member common market with a combined GDP of more than 3 trillion dollars comprising Russia, Belarus, Kazakhstan, Armenia and Kyrgyzstan.

Getting cargo into any of Russia’s fellow EEC members enables unobstructed entry into the Russian market.

Meanwhile, Greek olive oil exports to Russia – the product category is not included in the sanctions – have almost doubled, rising by 91 percent to 3.1 million dollars’ worth of trade in the first half of 2016, compared to 1.6 million dollars during the same period a year earlier.

Fruit and Veg Prices Expected to Fall by 80% in September

The Russian Ministry of Economic Development has forecast that Russians will soon see a significant drop in food product prices. In September, compared with June, the cost of fruits and vegetables may fall by almost 80%.

In the first month of autumn, compared to the first summer month, the overall decline in food prices will be 1.3%. This forecast has been made by specialists of the Ministry of Economic Development of Russia, as reported last week by the newspaper Izvestia, which got a letter from the department regarding the socio-economic development of the Russian Federation in the coming years.

According to this information, the decline in prices for fruit and vegetables in September compared with June will reach 79.6%. In the autumn of 2018, prices for all food products will not differ much from the prices of the current autumn, the forecast says.

The agricultural producers interviewed by the publication agree with the conclusions of the experts of the Ministry of Economic Development and Trade.

“The Ministry of Agriculture reported that this year’s harvest is quite good, so the products will really fall in price. Every September, it is more profitable to purchase not only fruits and vegetables, but also mushrooms, as well as fresh red caviar, which hits the shelves at that time,” explained the industry representative to the newspaper.

Egyptian Fruit & Veg Exports to Russia Increase by 28%

Minister of Industry and Trade Tarek Kabil said that the inter-trade between Egypt and Russia had witnessed a tangible improvement for the first time since 2014.

Egyptian exports to the country during the first half (H1) of 2017 amounted to about $360m compared to $286m, meaning that Egyptian exports to Russia jumped 26% after a decline ranging between 16 and 25% during the past two years.

Kabil attributed this significant improvement in the volume of exports to the intensive promotional efforts carried out by the ministry and its success in lifting the ban on agricultural exports and Egyptian potatoes, as well as solving all problems that Egyptian exporters faced.

A report was sent by the Russian trade office to Kabil, in which was outlined the indicators of the performance of foreign trade with Russia during the H1 2017. The report showed that Egyptian vegetables and fresh fruit exports witnessed a significant increase, reaching about $303.8m during H1 2017 compared to 236.2m during the same period in 2016—an increase of 28.6%.

Egyptian exports of agricultural crops also increased 28.8%. Fresh strawberries increased by 43.7%, fresh potatoes 159.5% and onions 29.8%.

Tomatoes in Game of Yes-No Between Russia and Turkey

Last week’s meeting between Russia and Turkey has yet to provide clarity about the tomato boycott, but the yes-no game isn’t over yet. In the run-up to the meeting, contradictory reports were heard. After last week’s meeting, only one thing became clear: nothing is clear yet, so borders will remain closed for now.

The choice of words of both parties after the negotiations illustrate the confusion. The Turkish Minister of Economic Affairs Nihat Zeybecki said in Turkish media that various agreements had been reached. For the remaining small problems he expects a solution before 20 October (when there’s a meeting in Kazan). “There are just one or two very small things regarding agrarian products. We agree on all major lines. I am certain all problems will be completely solved before 20 October.” Specifically about the tomato boycott the minister said: “In the near future we hope for a positive solution from the conversations with the Russians about lifting the sanctions.”

“Proposals for liberalisation of the tomato trade will be prepared separately within parameters between the Ministries of Agriculture,” according to the Russian Minister of Energy Alexander Novak in Russian media. When asked if the sanctions could be lifted by 20 October, he answered: “Yes, definitely. We have confidence that all will become clear before the meeting of the intergovernmental commission.”

A Russian analyst illustrates the different points of departure of the two countries for Turkish website Vestnik Kavkaza. “Our growers are unable to deliver tomatoes that can compete with the Turkish ones. It is obvious that Ankara is very interested in an end to the boycott, but our growers aren’t interested at all.” Earlier the Russian Ministry of Agriculture said he wants to protect the investments that have been made in the Russian cultivation of tomatoes.

Russian Consumers Paying a Pretty Penny for Apples

The World Apple and Pear Association (WAPA) has reported that domestic apple production in Russia for 2017 is expected to be down by 37%, after late frosts and heavy rains hit production. However, this will not be the only reason why apple sales could be down this year.

According to industry sources, ‘The combination of rising apple prices and falling Russian consumer incomes has been the biggest factor in the decline of both imports and apple sales in the Russian market, industry sources acknowledge.’

Since 2013 the price of apples per kilogramme is up by 30%, more than any other fruit or vegetable in the country.

Despite recent increases in production, Marek Marzec from Ewa-Bis, said that Russian apple production only fills around 20% of the demand.

“Russia has been trying to develop the domestic apple industry for the last 20 years, sure, they have made some progress, but no where what is needed to become self sufficient. The positive thing about Russia is that it is such a large country with many different regions, they should be able always have success despite what the weather might throw at them.” said Marek.

Igor Muhanin, President of the Association of Fruit and Berry Producers (ASPRUS), had initially said that apple imports in 2016 had reached 1.38 million tonnes, but later revised that amounts to 1.25 million tonnes, saying that smuggling continued to be an issue in Russia, which authorities there have found it difficult to keep up with.

“The Agriculture Ministry is providing a subsidy payment to apple growers for planting new orchards and equipping them for higher yields of Rb236,000  ($4,140) per hectare. The experts say this represents between 10% and 25% of the costs of planting and equipping new high-yield apple orchards.” said Muhanin.

Estimates have claimed that Russian apple consumption came to 2.5 million tonnes in 2016, about 100,000 tonnes (4%) more than 2015. By 2020 the forecast is for consumption of 3 million tonnes; this represents an annual rate of growth of 4%.

According to BusinesStat, “The rate of growth of both domestic production and imports will depend not on the recovery of Russian consumer incomes and demand, and not on the sanctions or the increase in investments for commercial domestic orchards.”

“This year, apple sales will grow by just 1.7%, roughly the same as government and expert forecasts for Russia’s GDP growth. As the resumption of growth in real incomes begins, apple sales will grow in the retail sector. In 2021 the sale of apples in Russia will amount to 2.08 million tonnes, which will exceed the 2016 level by 35.7%.”

How Sanctions Changed Russian Food Market for 3 Years

During the past three years, something Russians were used to doing in the 1990s has made a triumphant comeback: the habit of bringing food home from trips abroad. Shopping for food on vacation outside Russia has become a routine pastime for them since August 2014, when the Kremlin banned import of dairy, produce, fruit, meat, poultry, fish and seafood from the U.S., European Union and several other countries.

Authorities at the time maintained that the move would punish the West and boost the country’s agricultural sector, spurring it to thrive in the absence of competitors offering less-expensive products.

Three years later, officials insist it did. A closer look, however, presents a more uneven picture. Food production in Russia has increased, but so have prices. Higher prices have led to changed and lowered consumption, and in turn, reduced sales. Inflation has eaten into the promised government support to help food production. And, say consumers and people in the food industry, the overall quality of available food isn’t as high as it was prior to the food import ban.

The food embargo came at a bad time for Russia. Oil prices were at a record low, the ruble had plummeted and the country’s relationships with Western nations was worsening. The term “isolation” dominated the news here.

In an attempt at positive spin, the Kremlin announced that the food import embargo would boost “import substitution” and help Russians overcome what many politicians labeled their “addiction” to imported goods and become self-sustainable. Companies in the agricultural sector were promised financial and infrastructure support from the state. Many companies immediately jumped at the chance to conquer the market.

The agricultural sector has indeed increased production of some food items in the past three years, according to data provided by Rosstat, Russia’s state statistics service. Russian companies produced 17.5 percent more beef in 2016 than in 2014. Pork production increased 30.6 over the same period, poultry production 11.9 percent, frozen vegetables 31.6 percent, milk 5.8 percent and cheese 20.2 percent.

“The embargo was quite an incentive for us because it meant we’d be able to produce more,” says Andrei Danilenko, chairman of the Soyuzmoloko, Russia’a association of dairy producers. “Over these years, we filled the niche completely – together with Belarus that supplies the rest.”

Spokespeople at the Agriculture Ministry are even more positive. “For the first time in many years, Russian food items started to dominate on the shelves,” officials said in a written statement.

Food imports during the past three years dropped almost in half, the ministry said, from $43 billion to $25 billion, whereas overall Russian agricultural production has increased by 11 percent.

“Achievements of the agricultural sector in recent years allowed us to edge even closer to full self-sufficiency when it comes to food,” ministry spokespeople said.

However, there was a downside. Rising prices, spiked by the embargo and fueled by inflation, changed consumer behavior. People started buying less and sales started to drop.

“People in general are saving money on food, and we end up selling less,” says Pavel Grudinin, head of the Sovkhoz Imeni Lenina agricultural holding that produces vegetables, berries and fruit in the Moscow region.

With some products, consumers started choosing cheaper options, and that kind of behavior significantly affected the country’s fish market, says Timur Mitupov, head of the Fishery Information Agency.

“Russia used to import 600,000 tons of fish from countries under the embargo every year,” he says. “Then people saw that fish is disappearing from the shelves and becomes more expensive. So they started replacing fish with something more affordable – like chicken.”

Yearly consumption of fish dropped from 22 kilograms (48 pounds) per capita to 16-17 kilograms, Mitupov says.

Adding insult to injury, the promised state support turned out to be not much of a help, Grudinin says.

“Financial support from the government on paper increased this year, but if you convert it into hard currency, you’ll see that in reality it actually decreased, because hard currency is more expensive now.”

At the same time, he adds, various taxes and levies have increased during the past three years, and so have crediting rates: “So there is simply no money to invest into growing.”

For the restaurant industry, the food import ban is a double-edged sword. Many restaurants had based their cuisine on imported food items and shut down after the embargo, unable to adjust to the new reality quickly enough. Those that survived are experiencing a gastronomic renaissance, says Alexandra Sutormina, restaurant consultant and food critic for GQ Russia.

“Restaurateurs discovered Russian meat, Russian seafood, Russian vegetables. Russian food has become a thing,” she says. “They started experimenting with it, setting up their own small farms, selecting products more carefully.”

The quality of Russian food products, however, is far from the best, argues Victoria Lavrushkevich, manager of Saxon&Parole, an upscale restaurant in Moscow.

“We offer quality seafood and quality meat,” she says. “But Russian (food) products or products we now have to buy in other countries are worse in quality and the same in price compared to what we used to get from Western suppliers.”

Some food has turned out to be flat-out irreplaceable – like cheeses from Italy and France. It takes decades to produce a good mature cheese, notes Lavrushkevich.

Sutormina agrees: “Even though many small cheese farms appeared across Russia over these three years, wonderful cheeses from Europe is the one thing we all miss.”

The embargo has hurt the ordinary consumer in more basic ways, says Vasily Uzun, economy professor at the Russian Presidential Academy of National Economy and Public Administration.

“The embargo took the cheapest products off the shelves: Polish apples, American poultry and European cheeses. Products that replaced them turned out to be more expensive and of lower quality,” he says.