A plunge in prices for Russia’s main export, crude oil, sent the ruble crashing to its weakest level since January, threatening to push the country’s already-shrinking economy deeper into recession.
Russia’s ruble eased as far as 71.65 to the U.S. dollar on Monday as concerns over the Chinese economy drove the price for Brent crude below $45 a barrel for the first time since March 2009. The ruble was trading around 36 to the dollar this time last year.
Russian President Vladimir Putin signed a decree Wednesday ordering the “destruction” of all food brought into the country against import bans on Western products. The import bans were part of sanctions instituted in 2014 in response to Western sanctions on Russia over the Ukraine crisis.
The order will come into effect on Aug. 6. “[A]gricultural goods, raw materials and food originating from a country that has made the decision to introduce economic sanctions against Russian entities and/or individuals, or has joined such a decision, and which are prohibited from being imported into the Russian Federation … are subject to destruction,” the decree read, according to the Moscow Times.
The sanctions on Russia and those imposed by the country on Western countries have not affected Russia alone. Many European countries who were large exporters to Russia have also taken a hit. French dairy farmers have been protesting unfair prices and a shrinking market since the start of July, and a large part of that problem was due to the disappearance of the Russian market for French cheese.
The new decree does not pertain to the small amounts of Western goods that citizens are allowed to bring back from Europe or the U.S. for personal consumption. The limits of “personal consumption” have often been tested, with Russians attempting to smuggle large amounts of imported cheese or other specialty goods into the country. Earlier this month, a Russian man was caught attempting to smuggle 1,000 pounds of contraband cheese into the country. A large black market for these banned products has quickly emerged in the past year, complete with back room dealings.
The Russian Federal Statistics Service reports that since June last year to June this year the greatest increase in prices was for frozen vegetables, nuts and dried fruits – products with an average price not more than 500 rubles.
The fall of the Russian currency in the second half of 2014 influenced the prices. As a result, prices of imported products grew, consumers began to save and some stores increased the cost of top-selling items.
Since June 2014, the price of nuts in Russia grew by more than 80%, from 311.5 rubles up to 564.5 rubles per kg. Price for dried fruit grew by 64.6% – from 174.2 rubles up to 286.8 rubles per kg. The cost of frozen vegetables increased by 59.5% from 122.4 rubles to 195.1 rubles per kg.
According to experts, this rise in prices was affected not only by the fall of the Russian currency but also by the food ban, imposed last August. At the same time there were also other factors: Turkey increased the price of hazelnuts because of the poor harvest caused by the frost. Azerbaijan, another supplier of nuts, increased the price for the nuts before the food ban and ruble weakening.
According to Viktor Evtukhov, Deputy Minister of the Ministry of Industry and Trade, from April 1 to July 22, the record decline in prices can be observed in the following product categories: cucumber (58.7%), tomatoes (41.3%), pepper (24.2%), cabbage ( 15%). Prices declined not only for seasonal fruits and vegetables, banana became cheaper by 19.9%, grapes – 7,8%, oranges – 7%.
According to the Federal State Statistics Service (Rosstat), in June, for the first time since August 2014, food deflation was recorded in Russia, in monthly terms it was 0.4% (inflation in May was 0.1%); yoy growth for food prices slowed to 18.8% from 20.2%. According to Rosstat, prices for the majority of observed types of food products decreased in June.
According to the agency, in June price for cucumbers fell by 39.2%, white cabbage and tomatoes – by 27.5% and 23.1%, respectively, onion – by 12%, bananas – by 7.5%.
FMCG-retailer “Lenta” published results for the first half of 2015. The revenue of “Lenta” grew by 33.8% up to 114.9 billion rubles in the first half of 2015. During the same period of 2014 the revenue was 85.9 billion rubles, LFL sales grew by 11.5% compared to the first half of 2014.
In the second quarter of 2015 the retailer has opened 4 hypermarkets and 3 supermarkets. The total number of stores “Lenta” as of June 30 totaled 143, including 116 hypermarkets and 27 supermarkets.
X5 Retail Group announced preliminary results for the first half of 2015. In January-June, retail sales increased by 27.3% compared to the same period of 2014 and amounted to 380.68 billion rubles. Sales of stores “Pyaterochka” increased by 35% up to 274.63 billion rubles, sales of stores “Perekrestok” – by 11.3% – up to 3 billion rubles, sales of stores “Karusel” – by 11.5%, tup o 37.3 billion rubles, sales of stores “Express”- by 17.8%, up to 5.68 billion rubles.
During 6 months, the average bill rose by 11.3% up to 373.9 rubles. The number of purchases increased by 14.3%, amounting to 1.16 billion items.
From the beginning of the year, X5 Retail Group opened 488 new stores (235 stores in the first half of the last year). In the end of June 2015, the company operated 5,971 stores (5,273 supermarkets “Pyaterochka”, 438 supermarkets “Perekrestok” and 83 hypermarkets “Karusel” and 177 stores “Express”).
The apple harvest has kicked off in the Russian region of Krasnodar. The early varieties Geneva and Luch will be the first to be available at prices ranging from 40 to 55 Rouble (0.72 to 0.99 dollars) per kilo. The season started a week later than last year. Prices are on average 30% higher than in 2014, although expressed in dollars they are in fact 20% cheaper.
The Arbitration Court of St. Petersburg and Leningrad region allowed to sell products banned by the Russian counter-sanctions.
“The government restricted import of certain products, not their sale. According to this, the restriction on sales of dairy products, including cheese, is not enshrined in law”, – judge Sinitsyna decided.
The Court considered the appeal of JSC “Tander” (Magnit retail chain), as in one in the stores cheese, produced in France, was found. “Tander” had to pay the fine for illegal sale of goods, free sale of which is prohibited or restricted. However, the court decided that the ban on the importation of goods is not equal to the ban on the sale of these products.
Extending the Russian food ban is not such a problem for local retailers, since for less than a year they was able to find a replacement for most banned products, according to a survey conducted by RIA Novosti.
In August 2014, Russia restricted imports of food products from the EU, USA, Canada, Norway and Australia. Meat products, fish, vegetables, fruits, dairy products were banned. In late June, the Russian government extended the ban until August 5, 2016, excluding from the list of oysters and mussels fry and banning import of all cheeses, tightening the rules for import of lactose-free dairy products.
General opinion of the retailers is that ban extension will not influence prices as the new network of suppliers has already built. Although other factors such as seasonality, currency volatility, inflation, regulatory changes may affect prices.
It can be noted that there is a larger assortment range of domestic products on the shelves. Maria Kurnosova, Director of External Communications of “Auchan” noted that the share of imported products is about 3%. In “Dixie”retail chain the share of domestic production is about 90%. The specific demand for imported goods remains, but this applies only to certain groups of products, such as alcohol or fruit.
In the first five months of the year, import of goods from non-CIS countries to Russia decreased by 38.7% compared to the same period of 2014 and amounted to 63.365 billion dollars, according to preliminary data of the Federal Customs Service (FCS) of Russia.
In May 2015, the value of imports from non-CIS countries amounted to 12.348 billion dollars and compared to May 2014 it dropped by 1.8 times and compared to April 2015 – it decreased by 7.6%.
Imports of machinery products declined by 7.5% – to 5.976 billion dollars, food and raw materials for food production – by 7.1% to 1.734 billion dollars, of chemical products – by 9.7% to 2.449 billion dollars, textile products and footwear – by 16.5% to 551.3 million dollars.
Sugar import decreased by 2.7 times, grain crops – by 2.4 times, tobacco – by 30.4%, fish – by 15.9%, alcoholic and soft drinks – 12.3%, vegetable oil – by 11.9%, dairy products – by 9.7%, vegetables – by 6.6%. Total value of meat import compared to April increased by 16.5%, vegetables – by 15.6%.