Without juice, canned fish and bread: how sanctions leave Russians without their favorite foods

The Central Bank of the Russian Federation announced a new restructuring of the Russian economy: in the context of sanctions and the departure of foreign manufacturers, Russian companies will have to look for new suppliers and build new supply chains. Economists say this could narrow the choice for consumers. How these changes will take place, the publication found out. with the BBC.

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In Russia, a new restructuring of the economy has already begun or is about to begin, said the head of the Central Bank, Elvira Nabiullina.

Businesses will have to look for new suppliers of raw materials, equipment and various technologies. All this will affect the prices and assortment of goods in stores.

“Of course, these are very large-scale changes, they will take quite some time. It can last for several years, it’s hard to say now. And they may be accompanied by rising prices for certain types of products and a slowdown in the economy,” Nabiullina said.

Economists explained how the process of restructuring will take place: products and goods will not disappear completely, a shortage in general is also not expected, but the assortment will be reduced.

For example, in Moscow, where there used to be a huge selection of pastries. it was possible to buy "homemade" bread in the bakery, a French baguette or Italian ciabatta in the large "Sovetsky" store, as well as a sliced ​​loaf in a convenience store. In the future, the choice of bread may be reduced to a sliced ​​loaf and a couple more options. This is the reduction in categories and consumer choice that economists are warning about.

Bread is more expensive and less choice

The departure of Western companies and sanctions may lead to problems with the production of bread in Russia. It is already getting more expensive: since the beginning of the year, its prices have grown by almost 6%, according to Rosstat.

Industry representatives say that bread will continue to rise in price, and its choice may be significantly reduced.

On the example of bread, one can observe how the disruption of supply chains affects the assortment and price of products.

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Bread production depends on foreign supplies through two main channels - production equipment and, partly, raw materials, such as semi-finished products.

From 50 to 90% of bakery production in large Russian cities depend on imported equipment, primarily from EU countries, said Rustam Aidiev, head of the National Bakery Union. This alliance includes many major manufacturers.

Aidiev specified that the imported equipment was chosen mainly by "leaders of industrial production" in large cities. So far, he does not know if it is possible to replace European equipment with analogues from Asian countries.

“Right now we are looking for an answer to this question,” he explained.

For now, he said, he's expecting problems with consumables—parts needed to replace and maintain equipment, such as knives. A way out of this situation may be parallel, or “gray” import, that is, the import of goods into the country without the permission of the manufacturer. The government allowed it at the end of March.

Ivan Fedyakov, General Director of the INFOline Analytical Center, believes that there will be no shortage of bread in Russia, but he is sure that difficulties with equipment and supplies from abroad may primarily affect the “bakery at home” format. In contrast, many large bakeries, especially in the regions, operate on domestic equipment, Fedyakov explains.

Bakeries were the fastest-growing segment in food service in terms of new units. Manufacturers called this bread healthier and tastier. Many similar bakeries used, according to Fedyakov, frozen semi-finished products from European manufacturers, for example Fazer - the company announced its departure from Russia in early March.

According to Fedyakov, now there will be a shift in demand in favor of industrially produced bread.

However, costs are growing even for such producers, which means that even factory-made bread will become more expensive. Moreover, for the sake of savings, manufacturers who do not yet have problems with equipment may begin to reduce the range.

In conditions of uncertainty, Russian flour suppliers are also reinsuring themselves. Many began, according to Aidiev, to demand prepayment for their products. At the same time, contracts with retailers provide for price revisions every one to three months. Thus, the producers of bread get a cash gap, he explains.

Prices for some ingredients rose so rapidly that in some cases it was more profitable to keep raw materials in stock than to produce goods and sell them at the old price, Aidiev said.

“All this will entail a reduction in assortment,” he concludes.

Grape juice instead of orange

“Interruptions in the supply of concentrated orange juice can be expected, as well-established supply chains are now disrupted and transformed,” said Maxim Novikov, president of the Union of Juice, Water and Beverage Manufacturers (Soyuznapitki).

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Basically, the Russian market sells reconstituted juice, that is, made from concentrates.

In 2020, up to 70% of raw materials for the production of juice products were imported to Russia from abroad, while 25% were fruits that do not grow in Russia. For example, according to the analytic agency IndexBox for 2019, Russia was among the top three importers of lemons in the world.

The concentrate for the production of orange juice was imported, in particular, from the USA and EU countries.

According to Novikov, now producers have begun to work out alternative methods of juice production, and there is no talk of a shortage yet. But it is premature to make forecasts, the association clarified.

Among these alternative methods is the supply of raw materials for the production of grape juice from Uzbekistan instead of orange juice.

“We believe that the production of grape juice has good potential; there are a number of advantages in terms of the supply of raw materials to the territory of the Russian Federation and the opportunity for increased consumption,” Novikov is convinced.

If such supplies improve, this will become an example of replacing one product category with another - instead of orange juice, Russia will sell mainly grape juice.

At the same time, this will not greatly affect the market; orange juice accounted for only 3,4% of the juices produced in Russia. The country mainly produces apple juice, accounting for 44,7% of production.

The problem for beverage manufacturers may also arise from the other side - Tetra Pak announced that it would cease investments and that it would produce packaging only for milk and baby food.

The fact that the supply of juices and milk to stores began to fail due to a lack of packaging, Vedomosti wrote at the end of March, citing two retailers and a representative of a large food manufacturer.

The plant where Tetra Pak packaging is produced is located in Lobnya, near Moscow, but the raw materials are supplied from abroad. Another supplier of packaging for liquids, the Norwegian company Elopak, also announced in early March that it would suspend its activities in Russia.

According to Mikhail Mishchenko from the Dairy Market Research Center, it will not be easy for manufacturers to find a replacement for Tetra Pak. The reason is that the production lines are already tailored to the size and properties of Tetra Pak, for other packaging they will have to be reassembled. This will lead to additional costs.

Other types of packaging, such as glass and plastic, will also be more expensive for manufacturers than existing options, Fedyakov notes.

Canned fish

The breakdown of supply chains and rising prices for components will affect the availability of canned fish in Russia. Manufacturers and experts say that they will become more expensive, and in the worst case, they may temporarily disappear from the shelves.

The processing of fish and the production of canned food will stop if the industry does not receive loans at a low interest rate. This was stated by the chairman of the board of directors of the group of companies "For the Motherland" Sergei Lutarevich.

According to him, prices for components have increased by 80%, delivery by sea containers has become unaffordable. All this makes the cost of canned food higher.

Using the example of sprat in a tomato, he said that in fact, among the components of canned fish, only the fish itself and sunflower oil are purely Russian.

“Let's take sprat in tomato sauce as a basis: a tin and a can. All tin is produced either in Europe or in China. Our supplier is the Kaliningrad Packaging Plant; they buy tin abroad. The important ingredient is tomato paste. We have been bringing it from Iran and China for the last five years,” stated Lyutarevich.

At the same time, Russian sunflower oil has been rising in price since the end of 2020.

The government even limited the maximum prices for it at retail, and at the end of March introduced export quotas. According to Lyutarevich, by April 12, oil was being sold for 150 rubles per liter - this is three times more expensive than at the beginning of February. According to Rosstat, in March consumer prices for sunflower oil on average in Russia increased in March compared to February by 7,2%.

Fedyakov admits that oil prices rose, but after the export ban began to decline. In general, he believes that there will be no shortage of canned food, but prices for them may rise.

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Lutarevich describes the long-term restructuring of supply chains as a very complex process, which, as Nabiullina said, will take a long time: “We need to conduct a very serious analysis of what components for production we can make ourselves. You can allocate money for a short period to balance the situation and support the population. But you need to watch the programs and understand where to invest money in order to avoid imports as much as possible in a year or two.”

Fewer goods - lower standard of living

Rising prices and a reduction in assortment will lead to a decline in people's living standards. Russians will be able to afford to buy fewer goods, and the choice will be much more limited - many familiar goods will probably disappear from the shelves, and substitutes will appear in their place.

“There are goods that we cannot provide ourselves with. Accordingly, there will be a shortage for them,” says Raiffeisenbank economist Stanislav Murashov. A shortage does not mean that the product will leave the market, it will simply be presented in smaller volumes. Accordingly, demand will exceed supply and prices will begin to rise.

“The purchasing power of income will decrease on the one hand, but also the quality of consumption on the other,” says Murashov.

Fedyakov notes that the state can react to rising prices in different ways, for example, by artificially limiting it. This path has already been taken in some regions. But the best strategy, according to the expert, would be subsidies to the population - then increased demand could support enterprises.

The authorities verbally promise to support the population.

“Yes, it is clear that rising inflation is hitting the incomes and purchasing power of the population. But social payments will increase, thereby supporting the consumer ability of the least affluent segments of the population,” noted assistant to Russian President Vladimir Putin Maxim Oreshkin.

Economic Development Minister Maxim Reshetnikov said that the authorities would soon index benefits.

Murashov, on the other hand, speaks of restrained optimism regarding the production of products: in this area there are much more opportunities to replace import positions with Russian counterparts than in other areas.

“What we depend on most is industry, some high-tech industries - pharmaceuticals, medical equipment, the auto industry, technological things. This will most likely go away, and it will be difficult to replace it,” he notes.

In these areas, import substitution has not yet worked very well, and it will be difficult to support consumption with the help of benefits for the population.

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