On the support measures in the face of rising food prices

Mikhail Ershov, Principal Director on Financial Studies published an article in Moskovsky Komsomolets on the topic “On the support measures in the face of rising food prices”.

The problem of a sharp rise in food prices in recent days has become the subject of increased attention of regulators and experts. The industrialist Oleg Deripaska named a number of reasons for rising prices in his Telegram channel. These reasons lie in the plane of monetary policy.

The structure of the agricultural production market is quite specific - and the current state of just a few large players is decisive in it, and far from all of them are in good condition. Note that the agro-industrial sector in Russia is one of the few that has received large-scale government support in various forms for many years. Thanks to these measures, the sector was greatly helped. The country has reached self-sufficiency in a number of food products, and exports are developing. However, government assistance, incl. in the form of concessional lending, not everyone could receive. At the same time, the rates on the market were high and much higher than those of competitors. Thus, over the past 15 years, the average rates in developed countries for agricultural producers fell by 1.5 times. This has happened not only in strong economies like France or Germany, but also in countries like Hungary. In the UK, the average rate on agricultural loans ranges from 0 to 0.5%. This initially created unequal competitive conditions for Russian participants, and the picture as a whole changes little.

As a result, the industry in Russia remains underinvested. More than half of the agribusiness enterprises are still in need of modernization, and interest rates play an important role here. Oleg Deripaska rightly spoke about their meaning.

High interest rates have indeed hampered the economy's ability to grow for years. At the same time, in 2014, the economy experienced essentially a double shock - the introduction of sanctions from the outside and an increase in rates inside. In addition, there was a chronic shortage of long-term money, and lending contracted. And the pandemic has been superimposed on these problems. This forced the Central Bank of Russia to start, finally, a more regular rate cut.

But now, although the decrease in rates remains important, but other factors are more and more beginning to come to the fore. The rates should have been cut earlier. Now the problem has become more multilateral and has shifted to a large extent to the demand side of the economy. Therefore, the solutions should be more complex. Budgetary measures are also becoming important. The Central Bank agrees with this, but it seems that it is not going to participate in financing the budget, although other central banks do it.

Prices really need to be stabilized, or even better, reduced. This will be a factor in supporting household demand. But at the same time, it is also necessary to create more favorable conditions for business, ensuring the stability of the ruble exchange rate, lower taxation, etc.