Even in the current period of stagnant economy or mild recession, the Russian consumer is not being asked to make great sacrifices
This post first appeared on Russia Insider
During my latest 10 day visit to St Petersburg, I have kept my eye on prices in the supermarkets, in the municipal food markets, and I have some conclusions to share as a follow-up to my first shopping basket survey published on these pages at the end of July 2015.
Statistics on inflation for 2015 started from a high annualized rate of 15% coming out of the EU sanctions and Russian counter-sanctions, namely the food embargo. Food had always occupied a heavy position in Russians’ family budgets, partly because eating well is a core value which is relatively inelastic. Therefore, inflation in food prices due to the removal from the market of certain cheap imported products would exert a greater impact on official statistics than other lines in the budget.
At year's end, official inflation had been cut in half. This corresponds to a curtailment in spending on food generally to save money in a period of job uncertainty. This is what the supermarkets report in their lower sales volume and reduced margins. But those numbers need to be inspected more closely. Reduced spending also results from changes in the food basket towards domestic suppliers, which in turn have changed their offer and pricing in many areas.
Translated into real situations in stores today, I saw that the supermarkets have cut their offering in high-end products, like the prepared salads that Russians love, or the assortment of cheeses. When you visit the flagship premium level food emporium in Stockmann's, some counters have been shut partially or completely. The waiting time at formerly popular counters is nil. Moreover, the downward cycle means higher priced items are also no longer fresh looking, further reducing demand. These are the negative signs.
But there are also some uplifting nuggets of information available for observation when you keep your eyes open. To begin with, the price inflation in food relates almost exclusively to imported products, where the presently adverse exchange rate accounts for higher prices. Russian sourced foods are being sold for exactly the same price as they were one and two years ago. There is no price gouging whatsoever even in the market stalls, which never were known for the humane touch. Possibly this results from government threats to punish abusers, who would be most exposed to scrutiny on domestic foodstuffs.
Meanwhile the proliferation of domestically grown food which I noted back in July 2015 has proceeded apace in all market segments, particularly in fresh hothouse vegetables, meat and poultry. The river and ocean fish supply from Russian producers has also steadily increased while prices have held absolutely stable, even for such delicacies as live sturgeon from fish farms down in Astrakhan or trout from Karelian fish farms, which are world class products.
The problem area in Russian food was and remains dairy. For more than one decade the dairy shelves of Russian stores were filled by cheap European milk, cheese, etc. that came in on dumping prices and destroyed what was left of the post-Soviet dairy industry. Now all the Russian parmesan, Russian Tilsiter, Russian camembert and so forth is based on high-cost Russian whole milk. It is high cost due to the cold climate, high seasonality and still undeveloped supply of forage, not to mention the low penetration of advanced technologies like automated carousel-configuration milking operations. Given the relative long return on capital in dairy farming, it has been one of the last to respond to the new market stimuli in the age of sanctions.
High priced dairy is not negligible in the Russian household budget against a background of dairy’s prominence in the traditional diet, particularly fermented milk products which are used for cooking and baking as well as at the breakfast table. It will take several more years of sanctions to put the Russian dairy industry fully on its feet and possibly to bring down prices.
The supermarkets are competing with loss leaders to bring in consumers. Just down the street from my apartment is one such economy class chain that features Russian potatoes for 10 cents a kg, about 6 times cheaper than prices for similar quality potatoes in Europe.
Meanwhile, the replacement of longstanding European suppliers of fruits and vegetables continues without let-up. Russian importers and trade bureaucrats have been very creative in this domain. One of the latest successes seems to be Serbia, which now is supplying not only early fruits but also primeur vegetables.
A package of Serbian rucola and radicchio that I picked up in a nearby mid-level supermarket chain was very competitively priced versus similar Italian-sourced products in the Belgian market and was of superior quality. Meanwhile, what are being described as Greek (Cypriot?) strawberries have somehow made it through the normal supply chain to be on offer both by sidewalk vendors and by the tightly controlled municipal markets. The 400 gram boxes of luscious fruit sell for approximately the same $2.50 as the chemicals-laden Spanish monopoly strawberries in the EU market which they put to shame.
But, you ask, how much of all this can babushka afford, living on her state pension?
I have a couple of lady friends in St Petersburg, intellectuals of pension age, who did their own test on themselves to see if they could get by on their low category state pension of 10,000 rubles per month (about $145 per month). To their surprise and pleasure, they found they could get by, meaning feed themselves acceptably well, use public transport, go to theaters and concerts as in the past. This was true so long as they avoided the “dollar-zone” imported goods and services and stayed within the domestic ruble economy.
Conclusions: even in the current period of stagnant economy or mild recession, the Russian consumer is not being asked to make great sacrifices, and the commercial classes are not taking advantage of the crisis. There is no reason to believe President Putin will have a political price to pay for his current foreign policy, as his detractors in Washington and Brussels would like to believe. On the contrary, when you consider the patriotic upsurge that was highlighted yesterday on Russian state television covering the nationwide festivities to mark the second anniversary of the “reunification” with Crimea, you realize how misguided it is to underappreciate Russia and its leadership.
G. Doctorow is the European Coordinator of The American Committee for East West Accord Ltd. His most recent book Does Russia Have a Future? was published in August 2015
This post first appeared on Russia Insider
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