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. Last Updated: 07/27/2016

Ministers Clash Over Price Controls

MTNabiullina warned that long-term price controls would lead to food shortages.
Economic Development and Trade Minister Elvira Nabiullina took time out from a real estate forum in France to warn that attempts to impose long-term price controls on basic foodstuffs could lead to shortages, casting doubt on the prospects of a proposed anti-inflation bill.

The bill, which is being prepared jointly by the Agriculture and Economic Development and Trade ministries, would introduce maximum markup prices on staple foods to help consumers already reeling from spiraling inflation. It would also include methods for voluntary price freezes and outright price regulation by the state.

Nabiullina's comments, made on Monday at the MIPIM forum in Cannes, appeared to have been in response to a suggestion last week by Agriculture Minister Alexei Gordeyev urging the introduction of long-term price controls on socially significant foods.

Gordeyev told reporters after a government meeting Thursday that staple foods, including bread, milk, meat and eggs, should have retail markups capped in the range of 10 percent to 15 percent.

Nabiullina said imposing such a ceiling could have negative consequences, including a shortage of these foods and an increase in their wholesale prices.

"This is not an ideal measure on a permanent basis," Nabiullina said, Interfax reported.

"Such a measure can only be imposed temporarily, when there are external shocks," such as price growth on the world markets, she said.

Galina Bronikova, an Economic Development and Trade Ministry spokeswoman, said Tuesday that introducing fixed markup prices could trigger shortages as producers may lack incentives.

Gordeyev argued, however, that in some cases markup prices have already reached 30 percent to 40 percent, while agricultural workers' wages have remained stagnant.

Such a situation is not justified, he said, adding that the argument was whether the government wanted to make the situation worse for consumers.

As inflation climbed to 11.9 percent last year, a group of major producers and retailers -- including Unimilk, Wimm-Bill-Dann, Auchan, Metro and Kopeika -- signed an agreement to voluntarily freeze prices on staple foods.

The temporary agreement currently in effect is due to expire May 1.

"Price capping is good only as a stop-gap measure," said Anton Saraikin, a spokesman for dairy producer Wimm-Bill-Dann, which led the group that initiated the price-freeze agreement in October.

"The government will need to improve the agricultural sector greatly to make basic foodstuffs affordable for ordinary people," he said.

Experts have also said the measure would only bring temporary relief because retailers would try to compensate for lost revenues by raising prices for not-so-basic products.

"Any attempt to regulate foodstuff prices using nonmarket methods will be counterproductive," said Anton Struchenevsky, an economist at Troika Dialog.

"The original aim of these measures was to fight inflation, but they have woefully failed in practice," he said

The culprit, as far as inflation is concerned, is uncontrolled government spending in the public sector, Struchenevsky said.

Roland Nash, chief economist at Renaissance Capital, said that if prices were fixed at very low levels, there would be no incentive to bring in food from the provinces, which could lead to shortages.

He said no one was likely to risk that, however, because of a very strong understanding of market mechanisms. "Russia has gone through many types of markets over the last 25 years," Nash said.

"Inflation is a major problem in Russia, and the way the Central Bank and Finance Ministry would tackle this is through market policy rather than price fixing."