The purchasing power of Russians in the first half of this year fell in 64 of Russia’s 85 regions, according to the “borscht index”, a sort of Russian version of the well-known “Big Mac index”.
The benchmark ingredients in the soup – the so-called “borscht set” –were set by a retired teacher Natalya Atuchina from Omsk, who invented the index in 2014 to track rising prices after the sanctions regime was first imposed on Russia.
Russians who lived through the hyperinflation of the early 1990s remain somewhat traumatised by the experience and inflation to this day remains one of the public’s biggest concerns. So pensioners spending their spare time inventing inflation tracking indicators is not so strange in Russia as it may sound.
Inflation has soared this year, and the rising cost of food has been one of the main drivers. Inflation has been rising all year and topped 6.5% in July, well above the Central Bank of Russia (CBR) target rate of 4%, forcing the CBR to hike rates several times this year: March (25bp), April (50bp), June (50bp) and July (100bp) to the current 6.5%.
However, according to Rosstat figures the cost of the borscht set rose even faster and jumped by between 11.3% and 35.3% in May, depending where you are in Russia.
This year’s inflation has disproportionately hit the lower income bracket of society as foods make up a much larger share of their shopping basket. In the boom years of the noughties food’s share fell to around 35% of a total household’s spend, but currently it has crept up to over 50% again, reminiscent of the dark days of the 1990s. That has also affected the population’s perception of where prices are headed, which is itself an inflationary pressure.
At the last monetary policy meeting CBR governor Elvira Nabiullina warned that inflation expectations have become unanchored with the population expecting price rises far in excess of the actual price rises of around 14%, although the governor suggested that inflation may have peaked now that prices have already begun to decline. The rise in prices for food in May-June was a "seasonal issue", according to Nabiullina.
The average cost of products needed to prepare borscht had risen to RUB314 ($4.23) by July 2021, which is 13% higher than at the beginning of the year, but real incomes in Russia grew much more slowly. With a nominal average monthly income of RUB56,171 ($756.27) each family of four could afford to prepare 179 servings of borscht a month, the lowest number in the last five years, according to the calculations by Vedomosti.
"There is already a decline in prices for the products included in this borscht set,” Nabiullina said at a press conference on July 24.
With a general election looming, Russia’s ruling party United Russia created a working group to combat the rise in prices for the "borscht set", and in early August reported on the successes: "We agreed that the mark-up for seasonal vegetables in retail chains will be minimal –10-15%.”
But the problem is not so much the rise in prices as the low incomes of the population. It is the decline in real incomes against the backdrop of inflation that causes the greatest concern among two thirds of Russians, according to polls by VTsIOM and Levada.
Atuchina’s original ingredients in the borscht set, also adopted by the CBR and Rosstat, include only vegetables but the traditional recipe often also contains meat, which would make the borscht set even more expensive.
“The so-called borsch set, which includes only vegetables, is not indicative, because not everyone is vegetarian,” says Oleg Komolov, associate professor of the Financial University under the government of the Russian Federation, as cited by Vedomosti. The 1952 "The Book of Delicious and Healthy Food" recommends 500g of meat for 800g of vegetables.
The borscht set has risen on average from RUB273 ($3.68) in 1H20 to RUB293 ($3.95) in 1H21. The most active food prices rose in April-June: from RUB293 ($3.95) to RUB316 ($4.26). The price of borscht decreased by RUB2 this July, but that did not nearly offset the rise in prices in the first half of the year.
Average incomes of Russians in the first half of 2021 amounted to RUB35,200 ($475), enough to prepare 111 servings of borscht a month. Of this, 15.2% went to taxes and other mandatory payments, as opposed to the first half of 2020 when 14.8% of income was spent on taxes. Ten years ago only the tax and mandatory payments were only 13-14%, so the tax burden has increased albeit slowly.
The coronacrisis has eaten into incomes once again. Average incomes in the first half of this year were RUB35,200 ($475), but far from all of that could be spent on food as 15% goes on taxes and mandatory payments like utilities. That leaves RUB29,800 of disposable income, or 84.5 portions of borscht. On top of that another one and half portions of borscht is eaten up by housing and communal services costs to leave 83 portions after all the obligatory outgoings.
But this is on average. Social stratification in Russia is large, and 13% of the population only had enough money for food, and another 50% only for food and clothing, Rosstat reports. Money enough to prepare borscht (with no meat) 83 times a month is enough to keep a family of four fed, but leave very little over for anything else.
For families living on the border of poverty Vedomosti reports they have an income of RUB13,100 left over after taxes, utilities and housing costs, or a mere 48 portions of borscht. By comparison the average disposable income of the richest 10% was RUB96,000 – seven times more than the bottom 10% and enough for 302 portions of borscht.
The poorest Russians actually spend an average of RUB4,900 on food per person per month, or RUB160 ($2.16) per day, according to Rosstat. This is 20% less than the food portion of the subsistence minimum, which recommends eating 200 grams of meat per day, and half of what is needed for the borsch set, which doesn't include meat.
“In 2019, a tenth of Russians could not afford meat at least once every two days,” says Vasily Anikin, a leading researcher at the Federal Research Sociological Center of the Russian Academy of Sciences, as cited by Vedomosti.
The borscht index also reveals big differences between regions. The gap between richest and poorest regions according to the index is 4.6 times in 2021.
The regions where incomes allow residents to cook the most borscht a month were in the oil and gas-rich regions (Yamalo-Nenets and Nenets Autonomous Okrug – 230 and 204 dishes, respectively), as well as Moscow (179).
The poorest ten regions include Tuva on the Mongolian border (50), Ingushetia in the Caucuses (56), Kalmykia in the centre (59) but also other national republics, such as Kurgan Oblast (64) and Crimea (65), where salaries are very low.
The dynamic changes in the index this year also varies by region. In 64 regions of Russia, the indicator fell in the first half of 2021 compared to the first half of 2020 by an average of 4%. The most exaggerated changes were in those regions where the incomes of citizens were simultaneously declining while prices were rising, which happened in Sevastopol in the Crimea.
A borscht set in Moscow in July was RUB307, which is 16% less than the average RUB368 calculated by Rosstat on August 2.
The borscht set is also distorted by buying not the cheapest options but going for quality products. Rosstat explains discrepancies between its published numbers and the prices in the market that when calculating consumer prices, it takes the most popular goods, and they are mainly from the middle and below average price category.
Buying from one of the many open air markets or from the burgeoning number of supermarkets also affects the prices. The cost of vegetables on the shelves in stores is two to four times higher than that of producers, according to Rosstat data. This excess is usually stable; nevertheless, by June, prices jumped and the gap became three to five times higher. By June, potatoes, cabbage and carrots in the capital had doubled from January and the essential red beets that gives borscht its colour cost 3.5 times more.
The vegetable harvest has been badly affected by this year’s extreme weather conditions. “Usually the harvest comes from July, and the peak is in September. But this year is a protracted spring, late sowing, so everything has shifted by about a month,” says Sergei Korolev, ex-chairman of the public council at the Russian Ministry of Agriculture, as cited by Vedomosti. “When seasonal shortages arise, farmers want to get more margins at each stage and consistently inflate prices.”
Delivery of goods can be more expensive than their cost at the place of production, for example, if you bring vegetables from the south of Russia to Siberia. In this case, the goods must not only be stored, but losses must be anticipated which can double the cost of vegetables in transit.
"Trading networks, in turn, also put a high mark-up on the fruit and vegetable group – 30% [to the producer's price], or even 50%," Korolev said.
Meat prices also get marked up, especially by retail chains, but by a lesser extent. “The additional margin of retail chains is 10%, and for premium meat – 20%,” says the founder of the Veles meat processing plant, and now a State Duma deputy, Alexander Iltyakov.
The average trade mark-up for vegetables is on average 16.5%, the press service of the Ministry of Industry and Trade reported.
To keep prices down, the government decided to negotiate with retail chains to limit premiums and actively subsidise producers and expand acreage.