October 17, 2007

 

Russia to cut five percent on dairy import duties

 

 

The Russian agriculture ministry said Monday (October 15) that it would slash import duties on milk and other dairy products by five percent in an effort to decrease food prices in the country's battle against rising inflation in run-up to elections.

 

Aside from dairy, reductions on tariffs on soy and rapeseed oil are also considered, according to agriculture minister Alexei Gordeyev.

 

In September, consumer prices rose by 0.8 percent, bringing inflation up to 7.5 percent, which makes it difficult to meet the country's full-year target inflation rate of 8 percent. Milk was one of Russia's key factors last month.

 

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

 

Economic Development and Trade Minister Elvira Nabiullina said 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.

 

Rory McFarquhar, economist at Goldman Sachs said as the government tries to bring down inflation quickly, inflation could still get to 10 percent this year due to elections.

 

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.

 

In a statement, the association said manufacturers should cap prices for significant food products in return of freezing their corresponding retail prices.

 

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 (US$1.64) from 27 rubles, without specifying the time-range over which the increases had taken place.

 

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.

 

MacFarquhar said the problem is much more global and a small reduction in import tariffs will not have an effect in the long term.