Sergey Katyrin: "Targeted support of citizens is more effective than state regulation of food prices"

About this - in an interview with the President of the Russian Chamber of Commerce and Industry Sergey Katyrin.

- Sergey Nikolaevich, the food market in Russia has been in a fever for a long time. What factors can explain the negative price dynamics in the strategic area?

- Yes, the trend of rising prices in the food sector, unfortunately, has acquired a long-term character. And immediately it will not change to the opposite, since a number of negative macroeconomic factors are at work.

Everything began last year, which became one of the most difficult for the global and national economy: the energy crisis, the coronavirus pandemic, which caused the introduction of a number of quarantine restrictions, and the continuation of sanctions against our country. All this affected business, the income of the population, determined the dynamics of the growth of prices for food products. In 2020, prices for the vast majority of goods included in the food basket of Russians grew at a rate significantly higher than inflation.

Thus, according to Rosstat, the rise in prices for sugar by the end of the year amounted to almost 65%, for potatoes - 38, carrots - 35, sunflower oil - about 27, tomatoes - 20, chicken eggs - 18%. In general, over the past year, food inflation was 6.7%. Moreover, prices have continued to rise this year. In January, they have already risen by 8.2% compared to the same period last year. I would like to note that in terms of this indicator, Russia has overtaken the European Union by 8 times - in the EU, food prices have risen by only 1.1%.

- Consumers traditionally make claims primarily against the state - why can't it curb the rise in prices? Does the authorities have an arsenal of measures to, if not exclude, but at least slow down the rise in food prices?

- Yes, and the measures to influence prices are quite diverse. At the end of 2020, Russian President Vladimir Putin signed a law (No. 500-FZ) giving the Russian government new rights to regulate prices for socially significant goods, and amendments were also made to article 8 of the federal law "On the fundamentals of state regulation of trade in the Russian Federation. ". In accordance with this law, in order to stabilize retail prices for certain types of socially significant food products, the Russian government has the right to set maximum retail prices for them for a period not exceeding 90 calendar days. Simultaneously with the law, Prime Minister Mikhail Mishustin signed a decree that maximum retail prices for socially significant types of food can be set if they have risen in price by 10% or more in 60 days, excluding the seasonal factor. Now the list of goods subject to possible price regulation by the state includes beef, pork, lamb, chicken, fish, butter and sunflower oil, milk, eggs, sugar, salt, tea, flour, bread, rice, millet, buckwheat, vermicelli, potatoes, cabbage, onions, carrots, apples.

- What products were the first to be targeted by regulation?

- The first in 2020 to be regulated were prices for sugar and sunflower oil by concluding agreements between trade organizations, suppliers and the government of the Russian Federation. It was determined that, by the end of the first quarter of 2021, the maximum retail prices for them were set at 46 rubles / kg and 110 rubles / l, respectively, the manufacturer's selling prices at the level of 36 rubles / kg and 95 rubles / l. By Resolution No. 455 of March 27, 2021, the Russian government decided to extend the regulation of prices for these types of goods: for sugar - until July 1, and for sunflower oil - until October 1, 2021. Along with the agreements, duties on a number of agricultural products were adjusted. So, since the beginning of this year, the export duty on sunflower has been increased from 6.5 to 30%, and since July 1 it has been increased to 50%. The export duty will be 70% of the difference between the base and indicative prices. The base price is set at $ 1,000, the indicative price will be determined on the basis of data from the Reuters news agency. The measure will apply from September 1, 2021 to September 1, 2022.

- How does domestic business relate to state regulation of food prices?

- In March this year, our Chamber conducted a survey of entrepreneurs - food producers. So, 61% of respondents do not support government regulation of the final price of essential foodstuffs at all. The remaining 39% stated that they are ready to agree with the regulatory mechanism if the state also regulates prices at all levels from service providers and resources for producers to retail chains, to compensate for the losses incurred, as well as to regulate the markup between the producer and the end consumer. The problem is that government regulation of food prices does not provide for fixing the cost of raw materials or equipment. Thus, manufacturers will constantly face rising prices for raw materials and components. For example, since the beginning of last year, lysine (an essential amino acid used as a feed additive) has increased in price by almost 150%. Packaging has grown significantly: prices for plastic bottles increased by 27% in 3 months, lids for plastic cups - by 15%, dyes - by 30%, printed cardboard - by 50%. Add to this the increase in transportation costs, the increase in the cost of electricity, water, gas, etc. The profitability of many industries fell in 2020 due to rising costs, changes in exchange rates and other factors.

Agribusiness in the current environment has a very hard time. And retailers that participate in price regulation agreements suffer direct losses. Therefore, such manual control is dangerous because it can lead to a decrease in production volumes, a deterioration in the quality of products that are unattractive from a financial point of view for manufacturers.

- What way out of this situation does the business community see?

- State regulation of prices for foodstuffs in a market economy can be considered only as an extreme temporary measure of influence on the market. This approach should not be viewed as an effective measure of social support for low-income groups of the population. The temporary results from the establishment of marginal prices "from above" are offset by negative consequences and serious potential risks that threaten the development of production, and indeed the entire economy, including consumers. Among the risks can be called the emergence of an imbalance between supply and demand in the market, and as a result - a shortage of certain categories of goods, a reduction in the range of trade enterprises, the creation of barriers to the development of production in the country, a decrease in the number of economic entities, primarily small and medium-sized enterprises, an increase in concentration business. A sharp rise in prices is possible after the removal of long-term restrictions due to the objective growth of producers' costs. Therefore, it is worth paying attention to more efficient mechanisms. For example, these are measures to support producers that compensate for their growing costs, and programs of targeted assistance to citizens.

Undoubtedly, enterprises will benefit from long-term support through the existing mechanisms for controlling the purchase prices for fuels and lubricants, concessional lending with subsidized interest rates, crop insurance, and the continuation of the policy of purchasing in reserve (for grain).

- About targeted support of the population, please, in more detail.

- Our Chamber proposes a project for the development of targeted food aid. This support format can become a reasonable alternative to state price regulation. Targeted assistance can be implemented in the form of providing certain categories of citizens with targeted funds (government subsidies), or rather cash equivalents, for example, points, bonuses for the purchase of groups of food products through the existing trade infrastructure. Tool - electronic food certificates similar to bank cards. They will have nothing to do with food ration cards or coupons of the Soviet era.

The main task of targeted food aid is not only to support certain categories of the population, but also to improve their diet. It is important that this principle will make a guaranteed and permanent, rather than periodic, contribution to increasing the turnover of agricultural and food products, primarily of local producers. Certain initiatives to support the poor are already being taken in a number of regions of the country (Astrakhan, Kostroma, Omsk, Ulyanovsk regions , Komi Republic, St. Petersburg and others).

One of these projects is the social program "Care", which has been implemented in the Ryazan region since 2012 at the initiative of the regional Chamber of Commerce and Industry. More than 240 thousand people from the poor in 18 categories received social cards "Care", which allow them to purchase more than 40 types of everyday goods at a discount. I believe that targeted food assistance can become one of the most effective projects in the history of the country to support consumption, domestic production, the consumer market and the economy as a whole. At the same time, it will allow solving a number of economic and social problems of the population, significantly supporting retail trade, production of domestic food products and agricultural production.