The end of dolce vita

10/02/2009

Ekaterina Sholohova, ‘Expert Online’ observer

Devaluation of the ruble has begun to affect the cost of food stuff. Early in the year the wholesale sugar prices have jumped 40%. Analysts suggest that therewith sugar other food will rise in price at least 20%. Producers consider that in this situation retail chains should cut down their profits. But retailers don’t see opportunities for reducing.

The appreciation of dollar and euro has given first results. The Ministry of Industry and Trade reports that on average across the country sugar consumer prices have risen 7%, and wholesale prices – 40%. “If in December wholesale cost per one kilogram was about 15,5 rubles, then in January it was already 20,5 rubles. By the beginning of February the price has fallen to 19,5 rubles, however by April-May the rise will have recommenced,” told the senior expert of the Institute of the state of agricultural market Evgenii Ivanov to “Expert Online”.

Experts suppose that by April the wholesale sugar price per a kilogram will be nearly 26,5 rubles with having gone up only 3% over the previous three years. The reason is simple – it’s devaluation of the ruble. According to Mr. Ivanov’s survey just under the half of shipped sugar is produced from imported raw sugar, which is mainly supplied by Brazil. It’s natural that the appreciation of dollar has brought about the growth of ruble prices. The rest of the sugar market is the sugar produced from sugar beet.

This sugar has also greatly risen in price. “The most components that we have for cultivation of sugar beet are imported. These are seed, chemical defenders, harvesters, tractors and spares for them,” explained Mr. Ivanov. Even oil products, fertilizers, coal and other materials are bound to world dollar market as Russian export products,” added the expert.

Sugar producers also gave other reasons. “With prices of raw sugar having risen greatly, now we mostly sale sugar, produced from the beet of 2008, till we have considerable stock. But the question is that total supply (without raw sugar) will fall, and only this decrease of supply with stable demand will give the growth of prices,” said Alexander Soldatov, the General Manager of the group “Razgulyai”.

The government reacted to the increase of sugar prices by conducting an antimonopoly investigation by FAS (Federal Antimonopoly Service). “However we had no collusion, as it was revealed,” said Mr.Soldatov.

Sugar producers say that consumers could not suffer, as margin between wholesale and consumer prices is vast, and there is quite good reserve for controlling consumer prices. “The obvious way for smoothing the increase of prices is reducing the margin of retail or backing,” considered Alexander Soldatov.

But, as Evgenii Ivanov marked, it’s hardly possible. “The size of retail margin has been increasing from the middle 2001 and holds firmly in the range of 45-60%. Naturally the rise of margin is partly explained by the transport expenses having grown over these years and by extension on offer of more expensive small-packaged sugar at the cost of reducing sack trade (and weighing out into paper bags on sales outlets). However the Institute of the state of agricultural market assesses the major part of increasing retail margin as detected by growing appetite of retail chains in Russia,” insists Mr. Ivanov. “It is interesting to mention how retail sales react to changing wholesale prices. With wholesale increasing retailers react quickly and greatly, and with wholesale falling retailers don’t react at all or with big delay and much more less,” said Mr. Ivanov.

He estimates that already now consumers feel the increasing prices. As for products made with adding sugar, most sugar-consuming at cost products are caramel and condensed milk. “But the half of caramel is imported from the Ukraine and Byelorussia, it may not go up exactly because on sugar prices. Regarding to chocolate and chocolate candies, the part of sugar is not very high in the,” noticed Mr.Ivanov. The rise of price may gain about 5%”. The expert suggests that consumption of sugar by confectionary plants may decrease, as the nation is changing to cheaper confectionery since the autumn of 2008.

Thus there won’t be rise in prices at cost of deficit. Notwithstanding the growth of wholesale prices, affiliated chains hold retail prices at former prices. “Since the year began suppliers have risen sugar costs 30%. But we do not raise prices following their tendency; they are on the level of the previous year with our margin on social types of sugar being negative at all – we sale it cheaper than we buy,” said Anna Kareva, the manager on ties with investors of the ‘X5 Retail Group’. She said that growth of retail prices on other food stuff in chains ‘X5’ drops behind wholesale ones. “Last year in Moscow the increase of purchasing prices per average basket of goods was 14,4%, and the growth of retail prices was just 12%. It means that we don’t raise, but even cut down margin losing certain part of profit,” said Ms. Kareva.

At the same time government officials outlined that the increase of prices on sugar is only the first little bell to growing costs on all provision. “The situation in the Russian food market is becoming more threatening,” declared Sergei Mironov, the Speaker of the Council of Federation. Referring to the data of official statistics, he marked, that subject is 2%-growth of prices on all products from the beginning of the year. “Meanwhile consumers, as it follows from February public inquiry, have felt all the 10% of food inflation on their own back. The situation in the food market of the country looks threatening and uncontrolled,” said Mr. Mironov. He states that the year predicts the 20% increase in prices of imported foodstuff and components, which domestic products are produced from. And this is the majority in the market of our country.

Original text from: http://www.expert.ru/articles/2009/02/10/sahar/