The Ministry of Industry and Trade recommended that retail chains switch to direct contracts with suppliers of socially significant products. We are talking about agricultural products, the prices of which are subject to seasonal fluctuations: meat, milk, eggs, “borsch set” products. Viktor Evtukhov, deputy head of the Ministry of Industry and Trade, told Izvestia about this. In direct contracts, the parties fix prices for a long period – this will reduce the cost of products, the official said. Moreover, the department is considering the possibility of legislative consolidation of this norm. Trade already uses direct contracts, but a complete transition to this method of purchasing products deprives partners of flexibility, some market participants argue.
The fact that the Ministry of Industry and Trade recommended that retail chains for some goods of the social group switch from the practice of purchasing at tenders (electronic trading) to direct contracts, the deputy head of the department Viktor Evtukhov told Izvestia. The offer concerns products that are subject to seasonal price fluctuations: meat, milk, borsch set, eggs. Viktor Yevtukhov added that the ministry is considering the possibility of legislative consolidation of such a norm. The transition to direct contracts will significantly reduce the final price “on the shelf”, he said. With such cooperation, the parties fix the cost of products in a contract for a long term: from six months to a year, explained a source in the industry.
For example, from the beginning of the year until May, tender prices for eggs were extremely high, and in the summer, according to producers, they fell below the cost price, said the deputy head of the Ministry of Industry and Trade.
– Under long-term contracts, the cost of eggs is more stable, and the volatility for the year is lower, – Viktor Evtukhov emphasized. – As far as we know, during the year, purchase prices for eggs for deliveries under long-term contracts may fluctuate around 20%, maintaining a positive profitability of sales for producers. At the same time, when purchasing at tenders, prices in season and out of season may differ by two or three times.
He added that such a serious amplitude of purchase prices affects the entire market and is reflected in the purchases of other goods.
– As a result, we see a “swing” throughout the year throughout the retail, as reported by Rosstat and the Federal Tax Service, – said the Deputy Minister.
Market methods must be used to stabilize food prices, added Viktor Evtukhov. For example, to work on certain groups of goods, using the mechanisms of balancing food markets. We are talking about customs and tariff policy, state support for manufacturers, commodity interventions for some types of products).
– It is important to continue working on expanding the distribution network, primarily to involve small producers in the turnover. It is necessary to seriously increase the number of small trade formats – fairs, objects of non-stationary and mobile trade, wholesale and retail markets. It is through such outlets that the products of small farms are sold, – added Viktor Evtukhov.
According to Izvestia’s source in the trade industry, direct contracts also have drawbacks. For example, they can fix prices above the weighted average for the year. These values exceed the cost of production at tenders, he added. Moreover, tight contracts do not allow for changes in the market to be taken into account, the source said. According to him, electronic trading is a more flexible tool that makes it possible to take into account fluctuations in demand, to make purchases based on the needs of buyers. For example, tenders may take place on a weekly basis, and many companies may participate in them on competitive terms. The source noted that it is difficult to estimate the total percentage of direct contracts in the industry. Depending on the category of the product, it may differ: from a few percent to several tens of percent.
Working under direct contracts with suppliers can reduce the price of goods on the shelf, Utkonos Online told Izvestia. But they emphasized that this type of interaction deprives partners of flexibility: the volume of product deliveries is fixed for a certain period.
The Association of Retailers did not provide comment.
Poultry producers have already transformed their business processes. About 80% of purchases for poultry meat (carcass, fillets, legs) are made under direct contracts, for eggs – up to 75%, Director General of the National Union of Poultry Breeders Sergei Lakhtyukhov told Izvestia. The rest of the procurement is carried out in the electronic tenders mode. The expert clarified that some chains on the market work with manufacturers exclusively on a contract basis.
“Such a ratio of purchases between direct contracts and tenders allows us to neutralize the negative consequences of external factors,” Sergei Lakhtyukhov is sure. – For example, before the holidays, the demand for products may grow, and tenders allow chains to quickly purchase the required volume of goods, preventing local shortages.
It is impossible to conclude direct contracts with “fixed” prices for six months, a year, or if all components of the production of pork and chicken are constantly becoming more expensive, in turn, the head of the National Meat Association Sergei Yushin told Izvestia. The cost of feed, vitamins, amino acids, veterinary drugs, packaging behaves unpredictably and changes quite often, mostly growing, the expert emphasized. Therefore, manufacturers will bear great risks by concluding direct contracts, he said.
However, the transition to such contracts would probably exclude unnecessary intermediaries and stabilize prices, Director of the Milk Union Lyudmila Manitskaya told Izvestia.
Izvestia sent a request to the Ministry of Agriculture.