Nov 20, 2021
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A sack of potatoes, a sack of cabbage: Lukashenko will help Putin feed the country in a difficult year

A sack of potatoes, a sack of cabbage: Lukashenko will help Putin feed the country in a difficult year

Photo: Anton Vergun / TASS

Traditionally, inflation in our country is being fought by raising the key rate by the Central Bank. Money immediately becomes more expensive, money immediately becomes less. Now this is precisely the situation that is brewing: the Central Bank of the Russian Federation saw the risk of a repeat of the situation with a sharp acceleration in food inflation in 2022 and is preparing to take action.

“With regard to food inflation, here we have not a very good harvest this year, I am speaking globally. And there are risks that this situation will repeat itself next year, look what is happening with fertilizer prices, ”said the director of the monetary policy department of the Central Bank of the Russian Federation. Kirill Tremasov at the International Forum of the Moscow Exchange.

– Food will rise in price in any case – both in connection with the rise in prices for its constituent costs, and in connection with the general state of the economy of households. The policy of artificial price containment will not help here – it inevitably entails such uncontrolled fires, – believes the general director of LLC PH Lazarevskoye Christina Romanovskaya:

– As the owner of an agricultural enterprise, I am more interested in something else – how will the population cope with this? There is a well-known formula: income is equal to consumption plus savings. I have no reason to expect a significant increase in the incomes of the population. Will the savings rate decline? If yes – consumption will remain at the same level, if people try to save savings – consumption will fall or move to lower price segments.

Now, in my opinion, consumer behavior and food inflation are based on three factors: unsecured consumer loans; a pandemic that stimulates stockpiling; inflationary expectations. So, Kirill Tremasov has formed inflationary expectations, and he will be helped by reposting. The more people read his words, the more stable inflationary expectations will be.

And he was not addressing consumers at all. If you read it between the lines, you get the following: at the next meeting, the Central Bank will raise the key rate. Two points for sure. Maybe all four.

– The Central Bank needs to cut off all speculative factors and build its policy on long-term trends. Because as soon as prices jump on some history, the Central Bank immediately raises the rate. This is not always correct, because the speculative factor will go away, and the high rate will remain, – believes Alexander Abramov, chief analyst at Solidarity Bank:

– And what is happening is largely connected with the speculative component. Relatively speaking, if capital needs to find an asset in which it can wait out negative processes, then it can wait out not only in industrial assets, but also in food. But from the side of fundamental factors – supply and demand – there are no reasons for such a sharp rise in prices.

And speculative factors are difficult to predict, they exist today, but not tomorrow. A week ago, gas was traded below $ 800, and today it is almost $ 1200. Although the situation seems to have not changed much. The same is true in the food markets. Over the past twenty years, the accelerated growth in food prices was in 2007-2008 and 2011-2012. And each time they expected prices to go even higher. But in the end, prices stopped and even reversed, because global demand is not unlimited. Here and the reserves, which we have in the country in sufficient quantities, also matter.

– The specificity of Russian inflation lies in the fact that our foodstuffs are becoming more expensive, – notes Maxim Krivelevich, associate professor of the Department of Finance and Credit, FEFU:

– If we take inflation, for example, in the United States, we will see a sharp rise in fuel, but a relatively small rise in food prices. The same is the case in other developed countries, where building materials, transportation are becoming more expensive, and food is becoming more expensive on a par with the market. There is none of this in Russia. Why? Objectively, we are a country with a very poor population.

That is, the overwhelming majority of Russians cannot afford to spend money on anything other than food and utilities. Therefore, food remains a product with a very low elastic demand (typical for goods whose consumption cannot be delayed). If you spend money on going to the cinema and buying bread, then when a movie ticket rises in price, you buy the same amount of bread, but go to the cinema less.

And when bread rises in price, you buy the same amount of bread again, but go to the cinema even less. That is, the Russians are forced to give up any other consumption, except for the consumption of the most essential.

And here a very unpleasant political factor is imposed – all these sanctions, counter-sanctions. As well as logistical problems and low effective demand. That is, if we had South Korean salaries, then we would have a South Korean food surplus.

But it is very difficult for an entrepreneur to decide to bring high-quality, good, healthy food to a country where people only have money for palm oil cheese. Largely. Each of us will remember in our environment several fabulously rich people, but they cannot meet the demand for industrial volumes of food. And this is actually a huge problem, because it is impossible to live happily ever after if you are surrounded by terrible poverty. For your sake, no one will bring good, high-quality goods and products to the store.

Plus, of course, politics. In Russian conditions, rate hikes are a way to increase inflation, not reduce it. In conditions when inflation in our country is not monetary in nature, but is associated with extremely high and, shall we say, excessively heavy taxation, with artificial pressure on the food market – thanks to these sanctions and counter-sanctions. Here, of course, we have an extremely unpleasant picture.

The more expensive money becomes, the more expensive loans will become. And along with the rise in the cost of loans, prices will rise more. Because in the country’s economy there is no other money besides the money of households.

– In addition to the fact that prices for all foodstuffs are growing, the logistics packaging of goods is also becoming more expensive. Due to the rise in prices for wood, prices for wrapping paper, cardboard boxes, wooden pallets (pallets) have increased. Petrochemicals are becoming more expensive – packaging plastic is becoming more expensive, this will also affect the final cost of goods, – believes Associate Professor of the Department of Finance and Prices of the PRUE G.V. Plekhanova Maria Dolgova:

– This year, the weather factors all over the world were not very favorable – somewhere there was a drought, somewhere, like ours, a cold spring pushed back the sowing and harvesting dates. A wheat crop failure, a grain crop failure – all feed is becoming more expensive, meat and dairy products are becoming more expensive again. And fertilizers are becoming more expensive because, oddly enough, we have a large share of imported fertilizers or imported components in the production of domestic fertilizers. That is, in any case, we import and import inflation from abroad. Indeed, in other countries, there are also inflationary processes, their goods are also becoming more expensive. And we import these goods. And, most likely, these processes will continue next year.

Due to quarantine restrictions, Russia, like all other countries, faced a shortage of workers, a shortage of cheap labor. The costs are increasing. Harvesting less and at higher costs.

And there is one more problem in our country. We, as I understand it, have almost completely destroyed the vegetable storage system. Vegetable storage facilities built in Soviet times were simply not maintained in proper condition. But our brothers Belarusians have built an excellent system of vegetable storage near the border with Russia, specifically aiming to supply their vegetables to our country or what they reimport from other countries. Unfortunately, we do not have this.

That is, we cannot even properly preserve our harvest. And this year, not only was there a small harvest of potatoes, but also they could not save what they harvested. And, accordingly, the import of potatoes began early, which became another round of price increases. Therefore, there are many factors here. And, unfortunately, yes, the gap is not visible. I can’t say any comforting predictions.

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