Fruit and Veg Prices Rising Much Faster in Russia Than in the EU

Between January and May 2018, food products became 2.1% more expensive in Russia, while in the European Union, the same products saw prices grow by just 1.1%, according to the Federal Statistics Service (Rosstat).

The most notable difference was recorded in the price of vegetables, which grew by 14.4% in Russia, while in the EU they only increased by 2.7%. Meanwhile, fruit prices rose by 9.3%, while in the EU, they only increased by 6.7%.

It is worth noting that in 2017, the picture was the reverse, with prices in Russia rising more slowly than in the EU. Last year, food prices in Russia grew by 0.7%, while in the EU they increased by 2.6%.

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.

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.

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.

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.

Inflation Rate Growing Because of Atypically Cold Weather

In Russia, cold weather in spring and summer can cause the decrease of harvest, which may lead to the growth of consumer prices at the end of this year and even in the first half of 2018, according to new study by the Central Bank, published on July 12.

According to the Central Bank, in June inflation rate was 4.4% in annual terms (before that the inflation rate was expected to be 4%). The growth of inflation in the first summer month was affected by prices for fruits and vegetables, which increased by 8.3% compared to May and by 27.6% from the beginning of 2017. From April to June, price for potatoes went up by 91.9%, and price for staple vegetables except for cucumbers and tomatoes rose by 67.2%, according to the data of the Ministry of Economic Development.

Earlier it was said, that the rise in prices for fruits and vegetables was attributed to the delays of the early harvest because of atypically cold weather in spring and summer. According to meteorologists, May was one of the coldest in the history of the country. However, the Central Bank believes that the spring-summer inflation is temporary.

Beside the cold weather, the inflation rate was also affected by the weakening of the ruble, experts say.

The official authorities expect a slowdown in the growth of consumer prices, including fruits and vegetables. Maxim Oreshkin, head of the Ministry of Economic Development, predicts a decline in prices for vegetables in July-August, after the arrival of a new crop on the market. According to the minister, inflation in 2017 will be 3.8%.


Growth of Prices for Fruits and Vegetables Slowing Down

According to the Ministry of Economic Development of the Russian Federation, the slowdown in the growth of prices for fruit and vegetable in Russia can be seen. Expects say that this trend will continue in the next months. According to the weekly data, the average daily price growth slowed to 0.18% in the first week of June from 0.25% in early May.

At the same time, overall inflation in May remained at the level of 4.1% in annual terms, which is slightly higher than the estimates made by the Ministry of Economic Development of Russia a month earlier. The main reason for this deviation was the dynamics of prices for fruit and vegetable products as the price increase accelerated from minus 3.1% in April to 2% in May, due to the atypically cold weather in April-May and a delay of the early harvest.

The prices for potatoes and other staple vegetables excluding cucumbers and tomatoes grew by 30.7% and 21.6%, respectively, due to the low stocks of production and low volumes of early harvest because of the cold spring.

The prices for greenhouse vegetable (cucumbers and tomatoes), on the contrary, decreased significantly – by 18%, (the previous month they grew by 1.6%). However, this could not fully compensate for rising prices for other vegetables.

In 2016, Inflation Rate Reached its Minimum Rate for the Past 25 Years

In 2016, the inflation rate was 5.4%, compared to 12.9% in 2015, according to Federal Service of State Statistics. This is the minimum rate for the past 25 years, according to IndexBox analysts: the previous record was in 2011, when the inflation reached 6.1%.

One of the main reasons of prices stabilization was strengthening of the ruble, connected to oil prices growth; in 2016, the average dollar exchange rate decreased by 17% to 60.6 rubles per dollar.

Another reason for the deceleration of the inflation rate was the tough monetary policy of the Central Bank: in 2016, the key rate was reduced only twice – in June and September (to 10%). This meant the growth of money market rates, which increased savings amount, slowed down credit activities and controlled prices growth.

Another reason was the decrease of domestic demand: for the first 11 months of 2016, the real income of the population declined by 5.8% and retail trade turnover – by 5.1% in annual terms.

In 2016, the inflation rate for food products was 4.6%, compared to 14% in 2015, for industrial goods – 6.5%, compared to 13.7% in 2015, and for paid services – 4.9%, compared to 10.2% in 2015.

As for the inflation rate forecast for 2017, despite the decline in inflation rate, it may not reach the forecast level of the Central Bank (4%), according to analysts. One of the reasons for that is the recovery of the domestic demand, which is very likely as real incomes got more stable. According to IndexBox, the inflation rate of 4% may be achieved if the embargo is lifted.

Fruit prices in Russia have increased almost by 60% for 2 years

According to Rosstat prices for fruit in Russia have risen by 59.2 per cent since the boycott. Between July 2014 and March 2016, when the sanctions were imposed, fruit prices have risen by nearly 60 per cent. Prices for vegetables and frozen fish have also risen. The largest increase in prices was registered during the first months after the boycott was introduced. Prices have stabilised for now.