Agriculture: Commission adopts measure to increase farmers’ cash flow

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A combine harvester harvests wheat in a field near the village of Suvorovskaya in the Stavropol region of Russia on July 17, 2021. REUTERS / Eduard Korniyenko

During a televised session with ordinary Russians last month, a woman insisted that President Vladimir Putin write Polina devitt and Darya korsunskaya.

Valentina Sleptsova asked the President why bananas from Ecuador are now cheaper in Russia than carrots produced in the country and asked how her mother could survive on a “living wage” with the cost of staple foods like vegetables. potatoes so high, according to a recording from the annual conference. an event.

Putin acknowledged that high food costs were a problem, including with “the so-called borscht basket” of staple vegetables, blaming global price increases and national shortages. But he said the Russian government had taken steps to address the issue and further steps were being discussed, without further details.

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Sleptsova is a problem for Putin, which relies on broad public consent. The sharp increases in consumer prices are confusing some voters, especially older Russians with small pensions who do not want to see a return to the 1990s, when skyrocketing inflation led to food shortages.

This prompted Putin to push the government to take action to fight inflation. The government’s measures have included a tax on wheat exports, which was permanently introduced last month, and retail price caps on other staple foods.

But in doing so, the president is faced with a difficult choice: in trying to avoid voter dissatisfaction with rising prices, he risks harming Russia’s agricultural sector, with farmers in the country complaining that the new taxes are discouraging them. to make long-term investments.

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Measures taken by Russia, the world’s largest wheat exporter, have also fueled inflation in other countries by pushing up the cost of grains. An export tax increase unveiled in mid-January, for example, sent world prices to their highest levels in seven years.

Putin faces no immediate political threat ahead of the September parliamentary elections after Russian authorities carried out a broad crackdown on opponents linked to jailed Kremlin critic Alexei Navalny. Navalny’s allies have been barred from running for office and are trying to persuade people to tactically vote for anyone outside of the ruling pro-Putin party, even though the other major contending parties all back the Kremlin on most issues major policies.

However, food prices are politically sensitive, and containing increases to keep people largely satisfied has been part of Putin’s long-standing core strategy.

“If the price of cars goes up, only a small number of people notice it,” said a Russian official familiar with the government’s food inflation policies. “But when you buy the food that you buy every day, you get the impression that headline inflation is rising dramatically, even if it’s not.”

In response to questions from Reuters, Kremlin spokesman Dmitry Peskov said the president was opposed to situations where the price of domestically produced goods “increases unreasonably”.

Peskov said it had nothing to do with the election or the mood of voters, adding that it had been a constant priority for the president even before the election race. He added that it was up to the government to choose the methods of combating inflation and that it was responding to both seasonal price fluctuations and global market conditions, which were affected by the coronavirus pandemic.

Russia’s Economy Ministry said measures imposed since the start of 2021 have helped stabilize food prices. Sugar prices have risen 3% so far this year after growing 65% in 2020 and bread prices are up 3% after growing 7.8% in 2020, he said. declared.

Sleptsova, who has been identified by state television as a native of the central Russian town of Lipetsk, did not respond to a request for comment.

Consumer inflation in Russia has been increasing since early 2020, reflecting a global trend during the COVID-19 pandemic.

The Russian government responded in December after Putin publicly criticized it for being slow to respond. He put in place a temporary tax on wheat exports from mid-February, before imposing it definitively from June 2. It also added temporary retail price caps on sugar and sunflower oil. The caps on sugar expired on June 1, those on sunflower oil are in place until October 1.

But consumer inflation – which includes food as well as other goods and services – continued to rise in Russia, up 6.5% in June from the previous year – it’s the fastest rate in five years. In the same month, food prices rose 7.9% from the previous year.

Some Russians consider the government’s efforts insufficient. With falling real wages and high inflation, ratings for the ruling United Russia party are at their lowest for several years. Read more.

Alla Atakyan, a 57-year-old retiree from the Black Sea resort of Sochi, told Reuters she did not think the measures had been enough and that it was negatively impacting her view of the government. The price of carrots “was 40 rubles ($ 0.5375), then 80 and 100. How come? asked the former professor.

Moscow pensioner Galina, who asked to be identified only by her first name, also complained about the sharp rise in prices, especially for bread. “The miserable help people have received is worth next to nothing,” the 72-year-old said.

Asked by Reuters whether its measures were sufficient, the Economy Ministry said the government was trying to minimize administrative measures imposed because too much interference in market mechanisms in general creates risks for business development and can lead to product shortages.

Peskov said that “the Kremlin considers government action to curb the rise in prices of a range of agricultural products and foodstuffs to be very effective.”

AGRICULTURAL FRICTION

Some Russian farmers say they understand the authorities’ motivation but see the tax as bad news because they believe that Russian traders will pay them less for wheat to offset the increased export costs.

An executive from a large agricultural company in southern Russia said the tax would hurt profitability and mean less money for investment in agriculture. “It makes sense to reduce production so as not to generate losses and increase market prices,” he said.

Any impact on investing in farm equipment and other materials will likely not become clear until later in the year, when the fall planting season begins.

The Russian government has invested billions of dollars in the agricultural sector in recent years. It boosted production, helped Russia import less food, and created jobs.

If agricultural investments are cut, the agricultural revolution that turned Russia into a net importer of wheat at the end of the 20th century could begin to end, farmers and analysts have said.

“With the tax, we are actually talking about the slow decline in our growth rate, rather than the revolutionary damage overnight,” said Dmitry Rylko of the Moscow-based agriculture consultancy IKAR. “It will be a long process, it could take three to five years.”

Some may see the impact sooner. The farm manager and two other farmers told Reuters they plan to reduce their wheat sowing areas in fall 2021 and spring 2022.

Russia’s agriculture ministry told Reuters that the sector remains highly profitable and that transferring the proceeds from the new export tax to farmers will support them and their investments, preventing a drop in production.

The Russian official familiar with the government’s food inflation policies said the tax would only rob farmers of what he called an excessive margin.

“We are in favor of our producers making money on exports. But not at the expense of their main buyers who live in Russia,” Prime Minister Mikhail Mishustin told the lower house of parliament in May.

Government measures could also make Russian wheat less competitive, traders say. They say this is because the tax, which has changed steadily in recent weeks, makes it harder for them to guarantee a profitable futures sale where shipments may not take place for several weeks.

This could prompt foreign buyers to look elsewhere, to countries like Ukraine and India, a trader from Bangladesh told Reuters. In recent years, Russia has often been the cheapest supplier to major buyers of wheat such as Egypt and Bangladesh.

Sales of Russian wheat to Egypt have been weak since Moscow imposed the permanent tax in early June. Egypt bought 60,000 tonnes of Russian wheat in June. It had bought 120,000 tonnes in February and 290,000 in April.

Russian grain prices are still competitive, but the country’s taxes mean that the Russian market is less predictable in terms of supply and price and could cause it to lose some of its share in export markets in general, a said a senior Egyptian government official, the main buyer of wheat.

($ 1 = 74.4234 rubles)


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