August 7, 2014 6:44 pm

Russian consumers prepared to swallow food ban

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Less than 24 hours after Vladimir Putin issued а blanket ban on western meat, dairy and other produce, Dmitry Kornilov, a well-heeled Moscow shopper, had one thing to say to the Russian president: keep up the good work.

Never mind that Mr Kornilov, an economist, shops at one of the capital’s most expensive, import-laden grocery stores, travels regularly to the US and was picking up a bottle of French white on his way to getting a manicure. Like many in Russia, he believes Mr Putin was right to respond to three rounds of serious western sanctions.

“If someone comes up to the street and insults you not once, not twice but three times, the third time you’re going to answer back,” Mr Kornilev said. “Pride is not just in a person, it is in a nation.”

Over the past six months, Mr Putin’s popularity has risen in line with his risky geopolitical gambits, much to the surprise of some pundits and western diplomats.

Against the backdrop of new US and EU sanctions, the downing of Malaysia Airlines flight MH17 and renewed fighting in east Ukraine, Mr Putin’s ratings have skyrocketed to 87 per cent – an all-time high – according to the Levada Centre, an independent pollster.

Some analysts believe this support could be undermined if serious economic pain forces the public to start paying for their patriotism. A ban on European food will be felt especially by the Muscovite middle class – the people who took to the streets in a short-lived anti-Putin movement in late 2011 and early 2012.

Food industry experts and economists warn the ban could have enormous consequences for food prices, inflation and supply across the country.

Yet the president appears to have weighed up the risks and bet that most Russian consumers, especially those in the regions, will survive without their French charcuterie and Latvian cheeses, as well as hoping that most economic consequences will not be felt immediately.

On Thursday Russian state TV launched into a promotional campaign of the domestic agricultural industry, espousing the virtues of locally grown fruits and vegetables and emphasising that the sanctions would be a boon for local producers. They said hundreds of jobs would soon be created not just in the agricultural industry but related sectors such as machinery.

In a report for Channel One, the main state news channel, one correspondent gushed about the quality standards for Russian produce – “among the highest in the world” with almost no genetic engineering. “In European products you will often find preservatives and added ingredients.” Russian customers, the correspondent noted, were known to complain about the “plastic taste” of such fare.

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Standing outside Azbuka Vkusa – an elite Moscow store whose shelves are piled with expensive imported goods ranging from American plums to Spanish watermelons – Evgeny Kiselyev, 27, a bank employee, conceded there would soon be less fruit and vegetables on the shelves but insisted he and his friends would manage. “I don’t think there will be any problems. It’s fine with me. We needed to answer with something,” he said.

One employee of a Russian meat import company said she supported the ban even though her company would be forced to find substitutes for the Spanish and Portuguese meat it had been dealing with and was likely to take a big financial hit.

“If someone is beating you like a piñata, are you just going to be quiet?” the executive said, blaming the west for throwing the first punch. “The ban on imports is only the beginning,” she added. “Winter is coming. We’ll see who is the last one laughing then. Let Europe pay.”

Food industry executives say given the broad range of ingredients and finished products banned, both producers and retailers will be unable to adjust quickly, resulting in less choice for some products.

Even Russian agricultural products could become more expensive. In the past, Russian producers of vegetables such as cauliflower have hiked prices when the cost of other vegetables went up – even if their own costs had not increased.

According to the Agricultural Ministry, imported food accounts for about 30 per cent of the average Russian household food bill, but that percentage tends to be much higher in urban and more affluent areas.

As food inflation is at a seasonal low because it is harvest time, economists believe there will not be an immediate jump in prices. However, Vladimir Tikhomirov, chief economist at BCSPrime, the Moscow brokerage, expects additional inflationary pressures to set in from October, estimating that the sanctions will add at least one percentage point to the annual inflation rate. Based on the government’s forecast, that would mean inflation could top 8 per cent this year.

The government has pledged to monitor and “control” commodity markets but experts are sceptical this will work. During the 2008-09 financial crisis Moscow tried to cap prices on some basic foods such as cheap bread and sugar but manufacturers got round this by stopping production of low-end products altogether.

At Pyaterochka, a discount chain owned by the X5 retail group, bread is sorted by price, with the cheapest at Rbs20 on the bottom shelf and the most expensive at up to Rbs100 on the top. “Back then [during the crisis], you could not get any of the cheap bread at all – it disappeared for several months,” says Anna Vetochkina, an elderly shopper at a Pyaterochka branch in Moscow.

Some shoppers worry there could be similar shortages with the new measures. “The sanctions – from both Russia and the west – just makes everything worse. There will be fewer products in the stores,” said Alexander Malofeyev, a waiter.

“There will be a rise in prices and it is going to hit consumers in the wallet,” said Marina Rybakova, a training manager. “Also, Russian food products do not have as high quality standards.”

But others like Mr Kornilov take the long view. The sanctions and reciprocal sanctions will last “three to four years maximum, then everything will go back to how it was”, he insists. In the interim, Russians are more than prepared to handle a few inconveniences. “The Russian people can survive anything,” he says.

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