Deep frozen prices
The first-rate Russian diary producers and trading networks decided to freeze prices on socially significant produces and signed a corresponding agreement. Recently prices on the most important and popular product groups extremely rose. The agreement was signed by diary producers “Wimm-Bill-Dann”, “Unimilk”, “Yug Rusi” (lit. the South of Russia), trading networks “Metro”, “Auchan”, “Kopejka” (Kopeck), “Perekrestok” (Crossroads), “Mosmart”. Prices on cow milk up to 2,5%, kefir up to 1%, sour cream, white and rye bread, eggs and vegetable oil are frozen till January 31, 2008, bur the agreement provides the possibility of prolongation. Trading networks set the minimal 10% trade margin.
It is remarkable, that the agreement doesn’t suppose any sanctions for its non-fulfillment. Besides that any part can leave it; it only must inform other parts beforehand, not later than for ten days.
The Reuters Agency informs with reference to a source close to the government, that the authorities have enlisted the promise of some big caterers that they would now rise prices on some kinds of bread, diary produces and vegetable oil during the pre-election period.
Against the worldwide price increase the RF government struggles against the inflation by very harsh means of the administrative control not taking into account disapproving comments of economists and market participants.
The Ministry of Agriculture and the Ministry of Economic Development and Trade assure that producers have decided to freeze prices on their own initiative without any pressure from the direction of the state, but experts take a different view. “It is obvious that business can’t argue with the state and must agree when the state demands”, said Pavel Trunin, an economist at the Institute of Transitional Economics to polit.ru. According to him the administrative price abatement will have only a short-term effect, especially if the world price incense continues.
“This is market and one can’t freeze prices on a market”, said in Wednesday the Minister of Finances Alexei Kudrin.
Producers refuse to say the amount of damages. “The final sum will count up to the end of the week. I guess we won’t announce it”, said the representative of “Unimilk” Pavel Isaev in Wednesday. And Marina Kagan, a member of the board reported to journalists that “frozen” products are about 5% of the whole turnover of the company. The experts put the beat at 30%.
Companies prefer not to complain of the state pressure. Marina Kagan said that they had had a “constructive dialogue” with officials, but remarked that “in the situation of market it is quite a strange step”. And Isaev added that “big company has big engagements”.
It is greatly to be feared, that freezing of prices at some produces can cause an extreme price raise at other. For example, this can concern butter and cheese that haven’t been included in the list of “socially significant products”. According to specialists there can be another unfavourable consequence of this agreement; namely, it can cause the monopolization of wholesale and retail trade: small business will be forced out and the market will be shared among network traders. Another anxious version says that prices have been frozen at the very height of the increase and that otherwise they will fall.
One has said already a lot on reasons of the price increase. The Federal Antimonopoly Service (FAS) of Russia claims that in most cases the increase of prices is a result of the antimonopoly law violation, namely, producers and traders make a certain agreement.
Pavel Trunin remarks that trade margins in Russia are really extremely high. But, according to him, it is because as compared with the Europea market in Russia there are very few retailers. As their number increases, trade margins will fall.
The FAS admits that besides the subjective reason of the price rise there are objective ones, i.e. price rise in world markets, increase of home demand caused by a rise of the income of population.
In the interview to RIA “Novosti” Alexei Kudrin remarked that price rise in world markets is caused first of all, by total buyer's over. Kudrin explained that it was bound up with fast-growing economics of the South-East Asia, first of all of Indian and China and with rise of the income of population in these countries. “That means that price is to make the expansion of production profitable”, remarked Kudrin.
The second reason, in the minister’s point of view is more short-term and caused by bad harvests in some countries. And the third one is a reduce of subventions to the agriculture. Subventions in the EU countries made domestic products noncompetitive and, in opposite, subsidized products from the EU countries went to the Russian market. “Thereupon the cancellation of subventions is favorable for us, although it presents temporary problems”, considers Kudrin.