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. Last Updated: 07/27/2016

Dairy Import Duties Falling to 5%

Itar-TassCustomers shopping at a store in Magnitogorsk last week. Retailers say they may freeze prices on some goods.
The Agriculture Ministry said Monday that it would slash import duties on milk and other dairy products in a bid to bring down food prices as the government battles rising inflation in the run-up to elections.

Agriculture Minister Alexei Gordeyev told journalists that import duties on dairy products would be cut to 5 percent from 15 percent over a six-month period. Cuts to tariffs on soybean and rapeseed oil are also being considered, Gordeyev said.

In September, consumer prices rose by 0.8 percent, bringing inflation up to 7.5 percent, making it unlikely that the government will meet its full-year target inflation rate of 8 percent. Milk was one of the key drivers for higher prices last month.

With State Duma and presidential elections on the horizon, rising food prices and inflation have emerged as major sticking points for the government.

Economic Development and Trade Minister Elvira Nabiullina conceded last week that inflation was likely this year to exceed 9 percent, while analysts are forecasting that it may even reach the 10 percent mark.

"[The government is] trying to bring down inflation quickly. This is an election period," said Rory McFarquhar, economist at Goldman Sachs. "This may have a transient effect, but it looks like inflation could still get to 10 percent [in 2007]."

On the weekend, the Association of Retail Companies, which groups together some of the country's largest supermarkets, suggested they would be prepared to freeze prices on certain goods for six months.

"We propose that manufacturers cap prices for socially significant food products, and in turn we are prepared to freeze corresponding retail prices,'' the association said in a statement.

Economists said the retailers' statement would have little practical effect beyond appealing to consumers.

"The news itself bears no significance for the [consumer price index]. They would cap prices if manufacturers did the same ... but why should manufacturers do the same?" said Tatyana Orlova, an economist at ING bank.

The Federal Anti-Monopoly Service on Saturday hit out at producers by attributing about one-quarter of food price increases to cartels.

Prime Minister Viktor Zubkov on Monday made a televised visit to the town of Balashikha in the Moscow region in a move that is increasingly typical of the new prime minister's old-style approach. After a Cabinet meeting back in Moscow, he said an investigation had shown that bread prices had risen to 17 rubles (68 cents) from 10 rubles, while milk had risen to 41 rubles ($1.64) from 27 rubles, without specifying the time-range over which the increases had taken place.

"We now need to find the reason for [these increases]," he said.

Analysts said the government had limited tools at its disposal to battle it, not least because its attention has been focused on pumping liquidity into the banking sector over recent months.

"The problem is much more global -- it is not something that a small reduction in import tariffs is going to have an effect on in the long term," MacFarquhar said.