Page 54 - RusRPTJan21

($0.49/kg and $0.62.kg respectively) for wholesale and retail sugar prices, respectively versus the current recent retail price of RUB52.73/kg).
A price cap of RUB95/litre and RUB110/litre for wholesale and retail sunflower oil prices respectively versus the recent retail price of RUB125/litre was also mentioned, according to RBC.
The government has cut similar deals with retailers in the past. During the 2008 crisis the government persuaded producers to hold down the cost of basic dairy products, the agreement was temporary, lasting only six months, and done on a voluntary basis. The government has few powers to force producers to cap prices for any length of time.
“Recalling previous price freezes in ​2007-08​ and 2015, we think that significant deviations from fundamental factors such as global and domestic harvests, as well as global prices, could be compensated for by a deficit or even by a higher catch-up in prices in the mid-term if such restrictions are in place for an extended period,” Sova Capital said.
It was the rise in wholesale and producer prices that mostly drove the growth in retail prices according to analysts. Sugar prices bottomed out at the end of 2019 before growing thereafter, fuelled by expectations of a weaker beet harvest and therefore weaker sugar production. As of early December, sugar prices in Krasnodar had doubled y/y. Sunflower oil prices also reflected higher prices for sunflower seeds, which is the result of global prices, a smaller harvest in Russia and a weaker ruble year-on-year.
Sova Capital analysts say that the proposed price controls should not have a significant impact on retail chains, as producers will shoulder most of the burden. These product categories make up a relatively small share of retailers’ sales, jointly accounting for c. 6% of Rosstat’s food inflation basket (3.1% for oil and fats, 0.9% for sugar and 2.5% for grain).
If agreed upon and implemented, such measures could reduce the growth in sugar and sunflower oil prices by nearly half, e.g. 38% y/y and 11.5% y/y, respectively, estimates Sova Capital.
“The direct impact on y/y headline inflation could reach 0.1-0.15ppts. However, since these categories are used in inputs for other food products such as confectionery goods, bread and baked products, and others, the effect might double to 0.2-0.3ppts, on our estimates,” Sova Capital said. “Such measures could have a quite limited effect on consumer inflation, which accelerated from 3.6% y/y in August to 4.4% y/y in November. In the food segment, the increase was more dramatic, reaching 5.2% y/y in November vs. 3.9% y/y in August.”
The near-term impact on producers should be more significant, with wholesale sugar prices capped at RUB36/kg vs. more than RUB40/kg currently. For sunflower oil, the cap of RUB95/liter is somewhat higher than current market prices of RUB90-93/liter. As such, we believe the proposed price caps would have the greatest effect on major Russian agricultural producer Rusagro’s sugar business, which could face restricted selling prices alongside increased production costs in the coming quarters.
54 ​RUSSIA Country Report​ January 2021 ​ ​www.intellinews.com