2024 has arrived: what will happen to food prices

In some regions, authorities decided to fix egg prices. Should this practice be introduced at the federal level, following the example of sugar and sunflower oil, in 2021?

Dmitry Vostrikov: Regulation does not increase the supply of products, and therefore does not solve the assigned problems.

Import substitution and a further focus on exporting agricultural products (this is what has been happening in the country for the last couple of decades) were the right vector of development and allowed us to move away from the “Bush legs” and dependence on food supplies to the Russian market. It is more correct to maintain the profitability of producers and plan production based on demand, expanding supply through investment loans. Then there will be a lot of goods.

If price stabilization or reduction is necessary, then economic conditions must be created that would help reduce costs, but there are no such prerequisites. In our opinion, in this situation, expanding state support for needy segments of the population is a more correct and effective measure for the economy.

Will opening duty-free imports of eggs help reduce their cost?

Dmitry Vostrikov: Imports may provide a small additional supply of goods. But egg prices in some countries that are ready to supply these products to us are higher than in Russia.

Rather, partnership agreements with retail chains stabilize egg prices. At the moment, network exchange trading shows much higher prices due to a shortage of egg volumes than in the summer, when networks forced poultry farmers to sell eggs below cost, which led to the reorientation of some poultry farms to the production of chicken meat.

Retail chains that work in partnership with poultry farms, keeping promises and concluding long contracts with prices that are comfortable for suppliers, experience much fewer problems with the volumes and prices of commercial eggs. The same chains that actually bankrupted poultry farms by forcing dumping are forced to overpay for eggs and set higher shelf prices.

How do you feel about the FAS initiative to regulate prices? with an increase of 30%?

Dmitry Vostrikov: Here, in fact, we see a rejection of the economic postulate that in highly competitive markets the price is set by the balance of supply and demand. Such regulatory instruments must be used very carefully after analyzing all the factors that lead to such price fluctuations. Distortions that could harm the business cannot be ruled out.

For example, the main sales are goods with deep discounts of 30-50%, and hypothetically, any enterprise can be held liable by attaching invoices from the same legal entity for a similar product on promotional basis and without a discount.

Manufacturers are planning to speed up payments for deliveries of perishable products by half. What else needs to be tweaked in relationships with chains in order to support manufacturers?

Dmitry Vostrikov: We support this proposal. The financial difficulties of suppliers today are due to the length of time it takes for partners to complete payments, the transition to 100% prepayment for raw materials/ingredients, packaging, services, etc. In this case, the supplier receives money from the products sold by the network up to eight working days. During this time, the network manages to sell the received goods two or three times, while the supplier receives money for the first shipment, often within ten days. This entails a shortage of working capital, which must be used for continuous production. Only by increasing food production can we provide the population with an affordable and stable supply.

The fact that suppliers are faced with cash gaps is not a healthy situation and does not stimulate the expansion of production. Domestic enterprises consider it fair to remove from them the obligation to finance trade with trade credits and establish deferred payments at the level of goods leaving the shelves.

Another pressing problem is the inability to quickly coordinate price changes with retail chains. New prices with minimal network adjustments are not accepted until all other suppliers are able to supply at the old prices, and there is no significant need to increase selling prices. But as a result, the buyer sees a noticeable increase in prices on the shelf for the product category.

The issue of the impossibility of agreeing on an order is acute. Now the supplier is obliged to supply any volume of goods requested by the network, specified in the order (from a box to a volume exceeding an annual volume), regardless of whether it can fulfill it. Otherwise, the supplier faces a fine. This leads to abuse by networks, which use this practice as a tool to impose unfavorable commercial conditions on the manufacturer during annual negotiations. Taking into account the statute of limitations, the network can issue total fines for the past three years, and this is significant for the economy of even large enterprises.

A solution could be strict compliance with self-regulatory standards (Code of Good Practices) by all market participants — it indicates the possibility of agreeing on an order and the timing of agreeing on changes in shipping prices. But since these voluntary rules are often not respected, the only hope is to pass a law on this. Such changes will eliminate sharp price fluctuations and the risk of product shortages on the shelf.

The Ministry of Industry and Trade is ready to amend technical regulations to ban the use of non-standard packaging to combat inflation. What will such changes lead to?

Dmitry Vostrikov: At the moment, GOST, where such standards are enshrined on the initiative of the Prosecutor General’s Office, is mandatory only if it is applied to the packaging. That is, if the manufacturer does not indicate that his product is manufactured in accordance with this GOST, he will be able to continue to use non-standard packaging.

In theory, manufacturers can switch to standard packaging, but here two factors need to be taken into account. Firstly, it is impossible to immediately restructure production to comply with these requirements.

To meet new requirements, it is necessary to replace/reconfigure production lines, order new and develop produced/purchased packaging and finished products, as well as agree on new product lines with retail. This will take 12 to 18 months. The warehouses of food enterprises today contain significant stocks of products and packaging that do not meet the proposed standards. Thus, the transition is technically possible no earlier than a year and a half after the change in the technical regulations of customs economic union.

Secondly, by reducing the weight or volume of a product unit, manufacturers strive to make it more accessible to consumers. In the current situation of a colossal increase in costs, such a transition could lead to an additional increase in prices.

Now skimpflation is also spreading — when expensive ingredients are replaced with cheaper ones (for example, instead of saury, ivashi is put in canned food). In which products is this most noticeable?

Dmitry Vostrikov: Counterfeiting causes enormous harm to the industry. Firstly, it alienates the consumer. Secondly, such unfair competition puts pressure on responsible producers, which ultimately kills the investment attractiveness of a business, slows down the modernization of the industry and does not contribute to the emergence of new modern enterprises. However, today there is no talk of the widespread nature of this problem (including, judging by Roskachestvo research).

One of the latest examples of skimpflation can be considered the falsification of honey with glucose-fructose syrups. But thanks to the recently adopted honey law, adulterated honey should completely disappear from store shelves. We are already working with retail chains to remove counterfeit “honey” from sale.

Starting in the spring of 2024, they will begin to block the sale of overdue goods. How will this measure help?

Dmitry Vostrikov: Expired items have no place on the shelf. The sale of expired products in our country is prohibited by law, and if such cases occur, they are usually isolated in nature, and it is not the fault of the suppliers.

The supply contracts of most retail chains provide for the acceptance of products with a remaining shelf life of 60-90%.

That is, with an average product sales period of 50 days, the supplier must supply the product to the network 500 days before its expiration date.

At the same time, it is quite realistic to block overdue payments using markings. But the measure requires investment in appropriate equipment, and in the current situation, any increase in costs in the commodity production chain may be sensitive to buyers.

You proposed that the Ministry of Industry and Trade recommend that federal retailers reduce the minimum threshold of residual shelf life to 45% for goods with a shelf life of one year or more, and for products with a shelf life of up to 12 months — to 50%. What is the essence of the proposal?

Dmitry Vostrikov: Retail chains try to purchase products with a shelf life of 60-90%; they play it safe too much, for fear of not selling the product within 1.5 years. Or they don’t analyze their own product sales statistics carefully enough. And it shows that the average shelf life of products does not exceed 20-50 days, and by no means the 500 days that some chains include in their requirements for suppliers as a mandatory remaining shelf life. At the same time, one of the leaders in the retail trade market has a remaining shelf life of 45%. This suggests that other networks can also operate under such conditions.

Since there is currently no long-term planning of orders from the chains, despite the recommendations of the Commission on the Code of Good Practices, there is a practice of a chaotic surge in orders. That is, the network can simultaneously order a monthly and semi-annual volume of products from the supplier, for example. No production facility will be able to produce it in a couple of days, and warehouse stocks, taking into account the inflated requirements for the remaining shelf life, cannot be created or the network will not accept it.

This means that the supplier will receive a fine for under-delivery and at the same time he will have to dispose of a large number of usable products, which is unacceptable neither for manufacturers, nor for consumers, nor for the country’s economy.

Any production risks are included in the selling price of products to ensure stable operation of the enterprise. Accordingly, the removal of unnecessary restrictions on the remaining term will contribute to the growth of supply and minimization of risks. This will allow optimizing the price along the entire chain from field to counter.

Every year, inflation leads to an increase in cost and the need to adjust the selling price, and the acceptance of products that have another year or two of storage, but produced in the previous season, will allow the buyer to see cheaper products from the previous harvest on the shelf. The choice of goods will expand. In any case, the expiration date will be indicated on the packaging, and the buyer will be able to make an informed choice when purchasing.

What will happen to food prices in 2024?

Dmitry Vostrikov: This, as always, will depend on global inflation and exchange rates; balance of supply and demand; price dynamics for material and technical resources for the food industry; personnel situations; the cost of logistics, raw materials, packaging, tariffs of natural monopolies, tax and non-tax burden and other factors.

source: «Russian newspaper»