For their daily bread, Russians pay much less than the citizens of the US, the European Union, and other bread-eating states in the warfighting alliance.
At current prices, the Russian loaf of white bread is cheaper by almost seven times than the American; six times less than the Norwegian; four times less than the Italian and German; three times less than the French.
In the war between armies marching on their stomachs, the Russian Army has already won hands down; that’s the farmers’, millers’, and bakers’ hands.
On the home front, however, it is not this international comparison which counts for Russian consumers. They are suffering from the comparison they are obliged to make between the price they pay for bread today and the price last year, or before the Special Military Operation in February 2022. Before the war, between 2019 and 2021, the average rate of inflation for bread was between 5% and 7% per annum. In 2024, the bread price rose, according to the state statistics agency Rosstat, by 13.2%. In fact, according to published studies in Moscow, bread inflation was double that rate at about 27% for the year.
The sensitivity of voters to this inflation in food prices is so great, President Vladimir Putin and Agriculture Ministry officials are trying to talk down the bread price and ask consumers to eat promises. According to Putin on February 7, “annual inflation stands at 9.5 percent, though as of February 3, this had reached 9.9 percent year-on-year. This presents a challenge, necessitating comprehensive measures to ensure balanced economic expansion.”
In a meeting with Prime Minister Mikhail Mishustin, the President said inflation is a goods supply problem which can be solved by targeted state intervention, including subsidies to producers, restrictions on exports of Russian foodstuffs, and jawboning oligarchs and other business owners to hold their prices down temporarily. “One paramount priority remains the development of a supply-side economy,” Putin said. “During the coronavirus pandemic, the Government executed highly effective sector-specific interventions. As previously discussed, including during meetings with the business community – whose representatives have advocated for this approach – we agreed with the Government to reinstate such sectoral coordination. We must assess the prospects of individual industries, identify priorities, and provide targeted support where required.”
Deputy Agriculture Minister Maxim Titov explained last week that state intervention in the food sector will be limited to asking the supermarket retailers to limit their bread-price markups to the government’s announced rate of inflation. “In principle,” Titov said, “as we see the dynamics of the price of bread, the price increase for the grain group that exists today has already been recouped.”
Titov also issued a radical warning disguised by a negative. “The cost of bread production is constantly growing,” he said, “but grain is not the main component in the cost of bread production.” The deputy minister means that after two years of bumper wheat harvests for the farmers and record tonnage of flour from the millers, the real reason for bread price inflation isn’t supply side at all. Instead, as Moscow think-tank research confirms, it is profit-making by the bread-sellers. Their profit margin has been reported as several times the average profit margin of the producers.
This is profit rigging and price gouging, as Russians understand it. Deputy Minister Titov is pointing the finger at Magnit (Dixy), Pyaterochka (X5), Mercury (Red & White, Bristol), and Lenta (Billa, Monetka), and to the oligarch groups of Alexander Vinokurov, Mikhail Fridman and Igor Kesaev who control them. Lenta, however, is part-controlled by the US private equity firm TPG Capital, based in Texas. Together, these four retailers have been steadily increasing their control over the entire Russian food retail marketplace; at present, they have a market share of more than 30%.
Reluctant as ministry officials and Russian agro-industry experts are to admit it, the reason for the acceleration in the price of bread is wartime profiteering. As a military source warns, “the picture is getting clearer; the outlook is getting dimmer.”
In global production of wheat, Russia is currently third after China and India, with more than double the production of the US, Australia, France and Canada, which also trail behind Russia on the wheat export markets. As an exporter of flour, Russia ranks only 10th on the world trade charts, but larger-volume flour exporters like Turkey and Egypt get much of the wheat they turn into flour from Russia.
As the following chart shows, large wheat and flour producers like the US, Canada and Australia have much higher priced bread than Russia.
CURRENT PRICE OF A 500g LOAF OF FRESH WHITE BREAD BY COUNTRY
Source: https://www.numbeo.com/
Over the last five years Russian harvests of wheat have hit record levels. Flour production has also reached record levels. Reports by Moscow think tanks like the Expert Analytical Centre for Agrobusiness (AB Centre) and the Institute for Agricultural Market Studies (IKAR) provide the details.
These sources also reveal that while supplies of both wheat and flour for bread-making have been growing and domestic demand has been stable to declining, there has been a steady rise in the costs of wheat and flour production. AB Centre reports the rising price of wheat drives the rising price of flour.
DOMESTIC PRICE OF WHEAT AND FLOUR, 2012-2022
Source: https://ab-centre.ru/
Since the weather has been good for growing and the harvests bountiful, cost-driven inflation for wheat farmers and flour millers, the experts report, has been caused by a combination of non-agricultural factors; these are principally the rising cost of working capital and operating finance set by the key interest rate of the Central Bank, and the diversion to exports which promise greater demand for Russian wheat and flour at the falling rouble exchange rate.
THE KEY INTEREST RATE SET BY THE CENTRAL BANK OF RUSSIA, 2020-2025
Source: https://tradingeconomics.com/russia/interest-rate
The rising cost of the raw materials makes a relatively small impact on the rising price of bread, however.
According to this report by the Russian Guild of Bakers and Confectioners (ROSPiK), an average of 750 kilograms of flour is obtained from one tonne of wheat. One tonne of flour then makes about 1.45 tonnes of bread. Thus, 1.088 tonnes of wheat bread can be obtained from one tonne of grain. In the wholesale and retail price of a bakery producer, excluding other factors, the cost of flour comes to 24.5%, and the cost of grain is 19.7%. A 10% change in the price of grain effects a 1.9% change in the price of bread; a 10% change in the price of flour leads to an average 2.5% change in the price of baked goods .
“The current situation with rising grain prices should not have a serious impact on the rising price of bread on store shelves,” ROSPiK reported in April 2021. “During the period 2017-2020, there was a significant change in producer prices for grain (wheat) — an increase of 40.9%, while the average prices of flour producers increased by 25%, and the average prices of bakery producers increased by only 8.9% over the same period.”
ROSPiK illustrated the analysis and prediction with this chart showing in percentage measures the components of the baker’s price for a loaf of bread (wholesale and retail), and of the retail price which Russian consumers must pay at the shop counter.
CLICK ON SOURCE FOR ENLARGED VIEW: https://foodmarket.spb.ru/
The conclusion of ROSPiK is that it is not supply-side costs nor domestic demand growth which is causing the price of Russian bread to jump well above the official inflation rate. Instead, ROSPiK says that “the trade margin, which reaches 35%, has a major impact on retail prices.” The chart and the analysis by the bakers contradict claims by government officials that the recent price hikes are due to transport logistics and to packaging in film and cardboard.
If it’s the trade margin which is the driver of bread price inflation since the Special Military Operation began in February 2022, whose profit margin has been rising fastest – the producers, transporters, wholesalers, or retailers? The trade analysts and think-tank experts refuse to answer this question. The reason for this silence is that no one dares to blame the dominant supermarket companies or to challenge their owners.
Instead, producer groups are appealing for special state bailouts. Last July, for example, spokesmen for the flour and bakery producers warned that the price of bread was being squeezed upwards by the rising export prices of both wheat and flour, and the Central Bank’s interest rate hikes.
Source: https://www.agroinvestor.ru/
“Bakeries have faced a significant increase in flour prices due to rising grain costs amid forecasts of a lower harvest, the National Bakery Union (NSH) said. Many enterprises began receiving notifications about the upcoming price increase to 29-30 rubles/kg of wheat flour of the highest quality at the end of May [2024]. Flour prices began to rise by several rubles per kilogram, and in two weeks the increase was up to 30% or more compared to the beginning of the month, the union noted.”
“Some flour mills have started demanding a reduction in deferred payment or even full prepayment, as well as offering to fix exorbitantly high prices as early as July, the NSH said. The union’s suppliers reported that there was a ‘certain panic’ in the flour market in May due to rising grain prices in light of information about adverse weather conditions affecting crops and the projected grain harvest. The situation on the domestic wheat market traditionally depends on exports, which, due to rising world prices and other factors, form high prices and limit the volume of supply in the country, the National Bakery Union [NSH] says.”
“The presence of export duties on grain without similar ones on flour significantly increased the export of flour, and many industrial flour mills ‘rushed there.’ ‘Given the almost limitless need for flour in the Asian and Chinese markets and the insufficient number of milling facilities capable of meeting the needs of industrial baking in Russia, it is worrying that in the absence of a quick response to what is happening, the supply of baking flour to the domestic market may become critically insufficient,’ a representative of the NSH told RBC.”
“The government is making significant efforts to curb bread prices, so it would be logical to take certain economic measures to stabilize prices on the flour market, according to the bakery union. The NSH proposes the temporary introduction of customs duties on flour exports, similar to grain, as one of the measures: this will help not only prevent the maintenance of a critical price level for the main raw materials for the bakery industry, but also reduce prices on the domestic market by 15-20%. Otherwise, bread producers find themselves in a difficult situation due to a sharp increase in the cost of basic raw materials and the traditional difficulty of raising prices for socially important products, the union explains.”
This is a fight for profit margin between the farmers, millers, bakers, and retailers, and their lobbyists in Moscow. The bakers are warning that favouritism on the part of the government threatens their survival – or at least the survival of the smaller bread factories which face takeover by the larger ones. “While maintaining the current dynamics, the National Bakery Union [NHS] predicts a further deterioration in the financial situation in the industry. This may lead to the closure of some key industrial bread production enterprises, especially small and medium-sized ones, which is of significant importance for the regions. Despite the fact that by the end of June [2024], the increase in flour prices slowed down, it still remains at a very high level, the NHS noted. The current increase in prices for raw materials may affect the final cost of bread: now it is increasing by about 10%, depending on the type and variety — about 3 rubles for a loaf, the Union has calculated.”
This analysis by the bakers, their forecasts, and the state measures they are seeking are disputed in the industry media by Igor Sviridenko, President of the Russian Union of Flour and Cereal Enterprises; Dmitry Leonov, Deputy Chairman of the Board of the Rusprodsoyuz Association, a union of suppliers and processors; and Denis Ternovsky, an agro-industry expert at RANEPA, a state think tank for economic policy. They have argued their differences in this report of last July.
This week they were asked to say what effect on bread pricing the concentration of ownership in wheat and flour production is having. They were also asked what impact oligarch ownership of the supermarket retailers is making on the government’s measures for controlling bread prices. They refuse to answer.
NOTE: The lead image (without the flags) is a cartoon by Marcello Chamorro, originally from Ecuador, whose work can be viewed here.
