Recession in Russia

Ministry of Economic Development forecasts inflation peak in March-April

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Ministry of Economic Development of the Russian Federation forecasts inflation peak in March-April, when it can reach 15-17% in annual terms, said Alexei Vedev, Deputy Minister of Economic Development, on Wednesday, January 14.

“The peak of inflation will be in March-April, yoy inflation in this period may reach 15-17%,” – said the deputy minister. He also said that by the end of 2015, inflation is expected to be double-digit”. Vedev added that this number will be affected by the dynamics of imports and the ruble exchange rate fluctuations.

January 12, Russian Federal Statistics Service confirmed that inflation rate in the country in 2014 was 11.4%, that is the highest rate since 2008. Then, consumer prices rose by 13.3%. In December 2014, consumer prices rose by 2.6% – food products rose by 3.3%, non-food products – by 2.3%. As for 2013 inflation rate, according to the Federal Statistics Service, it was 6.5%.

The official forecast for inflation rate in 2015 made by Ministry of Economic Development in the beginning of December was 7.5%. In the end of December Alexei Ulyukayev, head of the Ministry of Economic Development, announced that accordu=ing to the new forecast of the Ministry, inflation will be 10% in 2015.

www.forexpf.ru

Russian importers hopeful low volume will boost prices

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For exporters outside of the European Union, Russia had the potential as a lucrative market because of the ban on European products there limited competition. But the falling value of the Russian ruble has made it difficult for shippers sending fresh produce to Russia to get much of a return this year. Russian importers, who are looking to boost shipments from non-European countries, are also feeling the effects of a falling currency value. But Russia’s importers believe that good times are still ahead once they get out of the current situation.

According to Mohammed Mohammedli of Akhmed Fruit Company in Russia, the Russian ban on European goods cut 20 percent of what Akhmed Fruit usually imports. He noted that although a significant amount of what his company imports every year is now gone, the absence of that much product can be compensated by looking to other countries, like China, Turkey, Egypt, Pakistan and Morocco to send more fresh produce.

“We’ve explained to the exporters we work with that they can see better results if they decrease the volume of what they’re currently shipping,” said Mohammedli. “With decreased volume we can get prices back to normal, but we could see bigger losses if that doesn’t happen.” Depending on the commodity, Mohammedli thinks a cut in volume between 50 and 80 percent is warranted, though for staples, like onions and potatoes, that kind of cut is not necessary to boost prices.

“Products like cherry tomatoes, some salads, strawberries and grapes – could be limited because consumers don’t find them essential,” said Mohammedli. Up until this months, Russian importers would have normally taken more essential products, like vegetables from Europe. With the ban, they’ve been relying on  Egypt, Turkey, China and India to supply mainly vegetables, and Argentine and Chilean exporters have provided mainly fruits like apples and pears, grapes.

While solutions to the economic problems Russia faces and the political problems it has with Europe and the United States will take some time, Mohammedli believes that the Russian fresh produce sector will come out stronger after things have settled. He hopes the value of the local currency will improve over the first three months of 2015, and the contacts he and other importers are making outside of Europe will give them more options once the market is again open to Europe. In fact, the longer Russian importers have to make do without European products, the harder, Mohammedli believes, it will be for European exporters to sell their products in Russia once the ban is lifted.

“The countries Russians are working with are making contracts in rubles, and once the currency situation is resolved, Russian importers will become comfortable working contracts this way,” said Mohammedli. “Both Europeans and Russians are losing money, and there will be some companies that go bankrupt, but some will survive and continue their business like always. New agreements are being made with countries outside of Europe, so it will be very difficult to go back to European goods after the ban is lifted”.

www.freshplaza.com

Russian woes hit logistics firms

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AP Møller-Mærsk and Port of Hamburg amongst those feeling effects of the Russian slump. Shipping companies and ports working Russian routes will be severely affected by the contraction in the Russian economy in 2015 according to JOC. Russian finance minister Anton Siluanov announced recently that the economy could shrink by 4 per cent this year if oil prices remain at current levels.

Shares in Russia’s largest port company, Global Ports, fell by 81 per cent in 2014, wiping US$776m off its market value. AP Møller-Mærsk, which acquired a 37.5 per cent stake in Global Ports in 2012 through its subsidiary APM Terminals, said it would continue to operate as planned in the country in spite of the downturn, pointing out that Russia accounts for just 2-3 per cent of its total revenue.

The Port of Hamburg is also likely to struggle in the coming months as Russia is its second-largest trading partner. JOC reports that traffic in the first nine months of the year fell by 5.7 per cent to 504,000 TEUs and is expected to decrease even more sharply in the final quarter and through 2015. The port’s largest container handler, HHLA, has reported a significant fall in Russian trade over recent weeks, while traffic at its terminal in Odessa decreased by 30 per cent in the first nine months of 2014 due to the ongoing crisis in Ukraine.

www.fruitnet.com

Consumer market participants adopted a Memorandum on the temporary introduction of a number of rules of interaction between retailers and suppliers

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December 19 was held a session of the Working group (created earlier at the meeting of the Retail Companies Association Presidium and leading industry associations of food market) with the participation of representatives of trade networks and suppliers and producers organizations (National Meat Association, SOYUZMOLOKO, National Association of meat processors, Russian Union of baking industry, Fish Union, RusBrand, RusProdSoyuz, SPAP, Simple Company” and others.)

During the session were discussed the topical issues of the industry in the current economic conditions. Memorandum, which foresees the reduction of new prices consideration terms on all product categories by the trade networks and forwarding the response to the supplier within 14 days for the period from 22.12.2014 to 31.03.2015, was signed following the discussion.

These changes are necessary due to high volatility and difficult predictability of the ruble foreign exchange value dynamics.

I.Yakubson, Chairman of the ACORT Presidium comments:

“Retailers and producers are able to come to agreement and to demonstrate unanimity in a difficult economic situation for the second time in a short period.
Trade companies responded to the producers call to react to the challenges which circumstances put before them more flexibly without changing the retail’s mission in protection of the consumers interests, including low prices retention”.

The full text of memorandum can be downloaded here Memorandum

For the information:
The Retail Companies Association was established in 2001 upon the initiative of the market participants and in the interests of creating the necessary conditions for the formation and development of the civilized Russian retail market.
As an instrument of its members collective interests’ protection the Association allows to conduct a dialogue with state bodies, public associations, unions and associations with a maximum possible effectiveness.
Currently, the Association unites 37 largest retailers of Russia: Adamas, Azbuka Vkusa, Atack, Auchan, BILLA, Bosco di Ciliegi, Vester, Wikimart, GIPERGLOBUS, Globus Gourmet, Dixy, SELGROS, Euroset, Enter Svyaznoy, Lenta, Leroy Merlin, MAGAZIN 01, Magnet, Maria-RA, M.Video, Metro Cash & Carry, Media Markt, Obi, Obuv Rossii, O’key, Prisma, Republic, Spar, Sportmaster, Snow Queen, Tehnosila, Finn Flare, X5 Retail Group (Pyaterochka, Perekrestok, Karusel), Holiday Classic, Eldorado, Utkonos, Yuterra.

www.acort.ru

Supplies to retail chains frozen because of the collapse of the ruble

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Prices in shops cannot follow ruble devaluation: before retailers dictated terms to suppliers, now wholesalers lay down terms to retailers. If retailer do not want to increase purchase prices, deliveries of products may be suspended.

Maria Kurnosova, representative of the hypermarket chain Auchan, reported that part of the suppliers, both food and non-food categories, sent a letter that they would stop the shipment of goods, if the retailer did not increase purchase prices.

Some producers reported that a similar situation occured with Metro Cash & Carry: part of their suppliers stopped shipments or warned about this.

Anastasia Orlova, representative of the retail group “Dixy”, said that there were no breakdowns in the supplies, although some suppliers sent requests to increase purchase prices, they also refused to participate in the discount promotions.

Despite the penalties (up to 50% of the contract value), many suppliers suspended work. Small companies, unlike large multinational companies, cannot supply at a loss for so long. About 70% of the suppliers are in the process of negotiations, and if after a day or two retail chains refuse to accept reasonable prices, deliveries may stop at all, according to the head of the association “Roschaykofe” Ramaz Chanturia. “Empty shelves will cause panic among the population”, so retailers are likely to make concessions, he said.

Producer of fish and seafood “Agama” informed retailer about price increase in proportion to the increase of the dollar on Tuesday, said Yuri Alasheev, chair of the board of directors, they gave retailers a week for approval. He said, that most networks responded “quite calm”. “I think the situation will be clarified by Monday, when retailers will respond to our letter”, said Alashaev.

Wine importer Simple stopped selling wine for a while, it is not possible to order drinks on their website at the moment. Online assistance of the website confirmed that the sales were frozen because of the economic situation, and the problem would be resolved in a day or two. Anatoly Korneev, vice president and co-founder of the company, said that this was a “temporary measure”.

Andrew Agarkov, commercial director of the supplier Uvelka (buckwheat and rice) said that they continued supplies to retailers with the old purchase price and would raise prices in February according to the plan after the negotiations with retailers.

With the constantly growing currency rate there is no time for neg long negotiations on the revision of the price, although there is a rule that it should take 45 days, according to Dmitri Leonov, deputy chairman of the association “Rusprodsojuz”.

www.top.rbc.ru

Price increases of up to 10% expected

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The Russian Ministry of Economic Development expects prices for food to go up by 9.5-10%. According to the ministry, the boycott is responsible for 2.5% of price increases. The decreasing value of the rouble would account for price increases of 4%. Rosstat, the Russian statistics service, calculated that prices went up by 8.5% this year. In November, prices increased by 1.3% on average. Fruit and vegetables got 8.7% more expensive.

www.freshplaza.com

 

Pears getting more expensive in St. Petersburg

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The devaluation of the ruble influenced the price increase for imported pears on wholesale warehouses of St. Petersburg. Last week, the wholesale price for pears have increased by 15% at least and are continuing to rise.

This week, pears from Serbia costs 65-80 rub./kg ($1,31-1,55 per kg), depending on the variety, while a week earlier this production was sold not more than 60-71 rub./kg ($1,39-1,74 per kg).

The same situation is with Moroccan pears. The last week, pears from Morocco cost 66-73 rub./kg ($1.44-1.59 per kg), today the price is 75-80 rub./kg ($1,63-1,74 per kg).

The Russian consumers began saving money, so the consumption of pears is declining and if the price continues to grow, the consumption of pears may decrease even more. Importers think that further devaluation of the ruble against the euro and the dollar will lead to a sharp drop in the volume of imports of pears in Russia.

www.freshmarket.ru

Russians are saving on food, clothes and entertainment

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Consumers are saving on food, clothes and entertainment, choosing less expensive products. 75% of the respondents are going to save on New Year presents and food. However, 9% are investing money in expensive goods such as electric devices, home utensils or real estate.
70% said that they had revised their spending patterns, 40% began to buy less expensive goods.
People are adapting to the inflation, the share of budget spent on food is growing, therefore, the share of money spent on non-food products is decreasing.
The forecasts of the official economists for the next year are not optimistic either.

www.retailer.ru

 

Real wages decreasing in Russia

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Economist Dmitry Prokofiev in his interview to the internet portal dp.ru told about the current economic situation on the Russian market. For the first time since November 2009, there is a wage decrease in Russia. 5 years ago, the growth of wages was presented as a sign of overcoming the economic recession, but now, for some reason, no one says that the wages decrease is a symptom of a new recession.

Wages have been decreasing for 2 months already. On an average, in September wages went down by 1%, in August – by 1.2%, but in some industries they decreased by 4-5%.

Retail trade also slowed down, in the first quarter it increased by 3.6%, in the second – by 1.9%, and in the third – only by 1.4%.

At the same time, inflation is growing. In September, the official inflation rate in Russia was 8% (that is the highest rate for the last 3 years). The fastest growth of prices can be seen in food sector. During January-September 2013, the inflation rate in this sector was 2.2%, this year it is 7.1%. Car production in Russia, the growth of which we saw recent years, in September fell by 18%.

The Russians began to buy less. According to Romir agency, in September 2014 everyday consumer spending decreased by 6% in nominal terms compared to August 2014. Non-food consumer goods sales decreased by 17%. At the same time, the Russians began to buy more electronic devices, while prices for them are still the same.

Even the Russian market of luxury goods decreased (the recession if 2008-2009 almost did not influence it). In 2013, it was 10th in the world and fifth in Europe, but this year, as analysts predict it will decrease by 18%.

www.dp.ru