The epic of sugar and vegetable oil, which has been dragging on since last year, is clearly acquiring an indefinite character. The next stage of government measures to contain prices for these two national products was launched by Deputy Prime Minister Victoria Abramchenko. A little over a year ago, officials resorted to an openly anti-market method, manually freezing prices for rapidly rising sugar and butter prices, and thereby only spurring food inflation. Is there a lesson learned from this “shock therapy”?
In December 2020, the authorities were clearly late with measures to contain prices, but today they decided to act proactively. Abramchenko sent an order to the Ministry of Agriculture, the Ministry of Economic Development, the Ministry of Industry and Trade and the Federal Antimonopoly Service. Referring to the global trend of rising food prices, the Deputy Prime Minister asks “to provide the Russian government with analytical information on forecasting domestic prices for white sugar and vegetable oil, as well as agreed proposals aimed at preventing price increases for these products.”
Sharply exacerbated last year, in the midst of a pandemic and widespread lockdowns, the situation in the global food markets remains turbulent today. In October 2021, the aggregate food prices broke a ten-year record, mainly due to the continued rise in the price of vegetable oil and cereals. World sugar prices in October exceeded the level of October 2020 by more than 40%. According to Bloomberg, this trend is largely due to the energy crisis: leading exporters have begun to more actively process sugar cane into biofuel (ethanol).
As for Russia, for the period from November 2 to 8, sunflower oil and granulated sugar rose in price by 0.2% and 0.6%, respectively. But these are just weekly figures. In general, consumer prices rose by 8.13% in annual terms. In October, a kilogram of sugar cost an average of 52.8 rubles at retail – almost 10% more than in the same month of 2020. A liter of sunflower oil rose in price by 17% over the year, to 13.6 rubles.
Meanwhile, the Ministry of Agriculture assures that a good harvest of sugar beet and sunflower is expected in Russia this year, which “will provide the domestic market with processed products in the required volumes.” The department considers the current situation to be stable.
“Today, wholesale prices for sunflower are showing a gradual decline: in October they exceeded 39 thousand rubles per ton, today they are 35.5 thousand rubles per ton,” says Dmitry Leonov, deputy chairman of the board of Rusprodsoyuz. – Despite the fact that the agrarians are still holding on to the raw materials, hoping for a more interesting offer from the oil and fat factories, the processors are not expecting a rise in prices. Plus, the system of export duties remains a constraining factor ”.
Yes, the measures taken last season to regulate the market provoked a sharp jump in prices for sunflower oil. But now the situation is calm, there are no preconditions for a repetition of the situation. If farmers sell raw materials at an adequate cost, the price of oil in stores will not rise. This means, argues Leonov, there will be no need to resort to administrative levers. As for sugar, its production in the current season is projected at 5.5 million tons, and this volume may not be enough to meet domestic demand. But instead of directive methods of price containment, which are destructive for the market, it is possible to introduce programs of targeted assistance to the population.
“Despite the set of measures adopted in December 2020, it was sugar and sunflower oil that rose in price this year faster than other products,” notes Vasily Uzun, chief researcher at the Center for Agri-Food Policy of the RANEPA. – The experience was extremely unsuccessful. The subsidies in the amount of 9 billion rubles, which retailers and agricultural holdings received from the state, did not help either. Maybe it was worth sending money not to the owners of large companies, but to the poorest strata of the population, for whom the prices for sugar and butter are critical? “
Such targeted aid would cost the state a much smaller amount. In addition, for ten years now, the authorities have been hatching the idea of introducing food certificates for the most vulnerable social categories. But things are still there, sums up Uzun.
Be that as it may, Victoria Abramchenko’s initiative did not appear from scratch. It looks like the government wants to spread straw where precautions are most needed right now.
