Analysts called the conditions for reducing food prices by the end of the year

At the same time, the NKR does not exclude “some further price increase” for imported products if there are new sharp fluctuations in exchange rates, and the unfavorable situation in logistics persists or worsens. The main branches of the domestic agro-industrial complex this year “will not feel the full impact of the sanctions,” and it is difficult to predict the further development of events, Baimukhametova stipulates.

Food prices depend on the increasing costs of agricultural producers and processors of agricultural products, currency fluctuations, the restructuring of logistics routes and the general situation on the global food market, the representative of the Ministry of Agriculture lists, adding that prices are also affected by the rush demand for durable products.

To meet demand, according to the ministry, production is increasing and shipments are increasing, and in order to ensure food security and contain prices for basic products, the government provides for additional support measures and a number of customs tariff regulation measures for grains, oilseeds and products of their processing, and also sugar.

The key factor for reducing the cost of agricultural products in the next five to ten years will be the development of a selection base, livestock breeding, seed production, aquaculture and seedling nurseries, the NKR believes. To show how these factors affect the cost of products in individual industries, analysts give examples, in particular, dairy products and vegetables.

What are the risks in the dairy industry

The dairy industry is most exposed to risks due to new sanctions due to its high dependence on imports of breeding herd and bull semen, NCR warns. The most popular breed for milk production in the world is Holstein, it is imported to Russia from Denmark and Germany. This breed gives a high guaranteed milk yield (about 10 thousand kg of milk per year) with a very fast return of milk, but it does not tolerate cold well and is prone to diseases in Russian conditions, it is distinguished by a “high culling rate” and requirements for feed quality, therefore it lives much less than domestic breeds and requires constant import of the herd.

Domestic breeds – black-and-white, Kholmogory, Yaroslavl, etc. – are less whimsical, but rarely give more than 7 thousand kg of milk per year. According to the NKR, the sanctions may stimulate the development of domestic dairy breeding, but the formation of a new breeding herd will require significant investment, time and government assistance.

The dependence of the dairy industry on imported breeding material is about 30%, and it is declining: seven years ago, this share reached 50–60%, estimates Artem Belov, general director of the National Union of Milk Producers (Soyuzmoloko). According to him, so far none of the foreign suppliers has refused to fulfill their obligations to Russian companies. “Of course, there are certain risks, but it’s not necessary to say that there are any restrictions for the industry now,” Belov reassures.

In 2021, the NKR recalls, milk producers tried not to raise prices, despite a clear increase in production costs – an average of 15% over the past two years. They have increased the price of feed, which accounts for 50-60% of the cost, and mineral supplements important for animals, which should be in the diet all year round. In addition, dairies have increased lease payments for equipment, which many bought on lease from international manufacturers, such as Tetra Pak.

In general, the share of imported components in dairy farms is about 10-20%, in milk processors – from 15 to 20%, Belov states. He admits that the cost price is influenced by many factors and in general it will rise. If the dollar exchange rate stabilizes at the level of 90 rubles, then, according to Soyuzmolok, the cost of raw materials will increase by 11–12%, and that of processing by 13–14%. With a more aggressive growth of the dollar, the cost increase could exceed 20%.

Mandatory labeling of all dairy products now helps to fight counterfeiting and improve food safety, the NKR points out, but additional financial burden falls on producers and retail chains, which also spurs retail price growth. According to the NKR, the prices for dairy products, taking into account the new labeling and the increase in the cost of packaging, which accounts for about 15% of the cost, will increase.

Investments in labeling do not exceed 1% of the cost of producing dairy products, and for some producers they are “not even tenths, but hundredths of a percent,” insists Revaz Yusupov, deputy general director of the labeling system operator, the Center for the Development of Advanced Technologies (CRPT). There is no reason to talk about a ten percent increase in the final price due to labeling, according to Yusupov, and the consumer simply will not notice its contribution to the price of products. He also recalls that recently the government, in accordance with the anti-crisis plan to support the economy, gave farmers, retailers and restaurants additional time to prepare for the start of labeling of milk (as well as water) and fixing sales of labeled products.

Russia, as noted in the NKR, as a whole, independently provides for the needs of the domestic market in vegetables: potatoes and cucumbers – by 90%, carrots and beets – by 80%, tomatoes – by 70%. Egypt mainly imports potatoes to Russia (it accounts for half of imports), Belarus supplies a quarter of the “borscht set” vegetables, and Azerbaijan supplies a third of imported tomatoes. But for many vegetables, an increased dependence on imported seeds remains, and a disruption in supply chains amid international sanctions could significantly complicate the spring 2022 planting season and further spur prices.

In 2021, Russian farmers spent about $655 million on the purchase of imported seeds, according to customs data cited by the NKR. The biggest dependency is on sugar beets: 90% of the seeds needed for this crop are imported from France, Germany and Italy; 70% of sunflower seeds are from China, Kazakhstan, Turkey and the USA; about 60% of the seeds of other vegetable crops come from Italy, France and Poland. Domestic hybrids have developed in recent years, thanks to state support, too, but there are still few of them: for sugar beet, by 2022, 25 new disease- and drought-resistant hybrids have been bred (they cover about 30% of the market), and two new potato varieties have doubled their yield. above the average.

“We must change the system for providing farmers with seeds. Agricultural producers should become customers, and barriers, including regulatory barriers that prevent the rapid introduction of hybrids to the market, should disappear,” Deputy Prime Minister Victoria Abramchenko admitted on Tuesday, April 5, following a meeting on the development of agro-industrial and fisheries complexes.

Prices for vegetables are rising due to the rise in the price of chemical protection equipment, the increase in tariffs for transportation and electricity. Fruits, on the other hand, may rise in price, taking into account a significant share of imports and against the background of new sanctions and complication of logistics: bananas from Ecuador, citrus fruits from Turkey, kiwi from Iran, avocados from Israel, Peru and Colombia, and mangoes from Peru and Brazil may rise in price by 30– 40%, the NKR believes.

The seasonal increase in prices in March-April may be more noticeable than usual, but there are no prerequisites for a significant increase in prices for basic vegetables, including those from the “borscht set”, and fruits after the new crop of domestic products goes on sale, Baymukhametova states.