FPRI BMB Russia: Government attempts to cap soaring food prices

FPRI BMB Russia: Government attempts to cap soaring food prices
The Russian government is worried about the soaring price of food -- sugar prices are up over 70% this year -- and is proposing to cap the cost of staples
By FPRI BMB Russia December 16, 2020

Food prices have come into the government’s focus after Putin dressed down ministers over food inflation during an economic meeting last week. Responding to a report from agriculture minister Dmitry Patrushev about stability in Russia’s food market during the pandemic, Putin drew an unfavorable comparison to Soviet times. “In the Soviet Union, they said we had everything. But there wasn’t enough [food] for everyone” because of shortages. A similar situation may occur today—not because there are food shortages, but because people cannot afford current food prices. According to Putin, sugar prices have increased by 71.5%, sunflower oil by 23.8%, flour by 12.9%, and bread by 6.3% (likely compared to November of last year).

The next day, PM Mikhail Mishustin announced that by December 14 the government would take decisive measures to limit price growth for basic food products. First deputy PM Andrey Belousov was placed in charge of a working group consisting of Russia’s agriculture, economy, finance, and trade ministers. Belousov said the government would come to informal agreements with producers, suppliers, and retailers to establish price caps on sugar and sunflower oil.

Putin was not satisfied with the government’s response, however. On Sunday, he berated economy minister Maxim Reshetnikov for “experimenting” with food prices after Reshetnikov said his ministry was monitoring the situation. “This is not a joke!” Putin exclaimed. Unlike in Moscow and St. Petersburg, where people order Bolognese, the rest of Russia eats simple makarony po-flotski. But as incomes fall and unemployment rises due to the pandemic, people are having to limit themselves because they don’t have enough money for pasta. “It is unacceptable! … What are you proposing to do?” Putin asked Reshetnikov.

The next day, Reshetnikov had an answer. By December 20, the government will conclude agreements with sunflower oil and sugar producers to limit prices. The agreements will extend through the first quarter of next year, and the Federal Tax Service will monitor their implementation. To contain price growth on a longer horizon, the government will offer sugar producers preferential loans to buy sugar beets, impose export duties on sunflowers, subsidize millers and bakers for wheat and flour purchases, and propose a grain export quota. Most of these measures will run through June 2021. The economy minister also proposed changing Russian trade law to allow the government to establish price limits on basic foodstuffs when prices have risen by 10% in one month. Current law allows for such interventions only after a 30% monthly rise.

Does it feel like this frenzy is coming out of nowhere? Many analysts feel similarly. Some have noted that the timing of this urgent attention to food prices is a little suspicious: in just two days, Putin will hold his annual press conference where he fields hours of questions from journalists and ordinary Russians.

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This article originally appeared in FPRI's BMB Ukraine/Russia newsletter. Click here to learn more about BMB Russia/ Ukraine and subscribe to the newsletter.

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