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- No surcharges: Russia may introduce state regulation of markups on socially important goods
No surcharges: Russia may introduce state regulation of markups on socially important goods
TheMinistry of Agriculture has supported the deputies' proposal for state regulation of markups on socially important products, Izvestia has learned. The ministry believes that it is necessary to limit markups for wholesale and retail trade by 5% and 15% respectively only in exceptional cases - for example, when prices rise by 10% or more within two months. The Ministry of Industry and Trade, the Ministry of Economic Development, and the Ministry of Finance oppose the proposal. The ministries will have to remove the contradiction at an additional meeting in the government. In what cases this approach can be justified and what the industry thinks about it - in the material of "Izvestia".
How prices are regulated in Russia
The government is preparing a draft response to the bill of deputies of "Fair Russia" on amendments to the law on trade, "Izvestia" familiarized with it. The parliamentarians proposed to allow regional authorities to limit wholesale and retail markups to 5% and 15% respectively. We are talking only about socially important goods, a little more than 20 items, the list includes beef, poultry, butter, bread and so on. This approach will prevent situations in which retailers inflate the price of goods, as well as support citizens, believe the deputies. This bill has already been submitted to the State Duma.
The Ministry of Agriculture supported the initiative, however, clarified: this approach should be used in exceptional cases. For example, when prices for socially important goods grow in the region within 60 days by 10 percent or more, in this case, the Cabinet can and should limit markups by 5% and 15% for a maximum of 90 days, considered in the Ministry of Agriculture. According to the law on trade, with such dynamics of price growth, the government can already now set maximum allowable prices for socially important products. Thus, at the end of 2020, the government fixed the retail price of sugar and sunflower oil.
Many countries practice regulating and limiting markups on some products, Georgy Ostapkovich, director of the Center for Conjunctural Research at the Institute for Economic Research of the National Research University Higher School of Economics, told Izvestia. Domestic chains also cut it on some socially important goods. For example, for eggs, milk and bread the markup is negative: the networks buy these products more expensive than they sell them - these goods attract buyers who will then buy expensive goods in addition to the basic ones. According to the expert, more extensive regulation of markups may be justified, but only for a certain period of time.
But the Ministry of Industry and Trade criticized the initiative of the deputies, forming a negative draft of the government's response. The ministry noted that the law on trade already provides for state regulation, i.e. price fixing.
"The proposed approach is characterized by excessiveness", it contradicts the rules of competition, which are established in the EAEU, the document says. According to them, state regulation should be introduced in critical cases: for example, during emergencies, natural disasters, for reasons of national security and provided that problems cannot be solved otherwise.
State regulation of markups may lead to a shortage of goods, to the rise in the price of other products, for example, if retail chains shift their costs to them, plus encourage retailers to use illegal schemes of mutual settlements with manufacturers, the Ministry of Industry and Trade noted. Moreover, the regions may face the fact that retailers will provide them with food in different ways: sales will be concentrated where it is profitable, then in other areas there may be a shortage, the agency noted.
The negative draft of the review was agreed upon by the Ministry of Economic Development, the Ministry of Finance, and the Federal Antimonopoly Service, which means that the contradiction with the Ministry of Agriculture will have to be removed at an additional meeting in the government. "Izvestia" sent requests to the ministries, as well as to the Cabinet.
The main author of the bill, Just Russia party leader Sergei Mironov, believes that"soft mechanisms" are needed to prevent food shortages - for example, theability to limit trade margins rather than freeze prices.
- I am convinced that the state is obliged to curb the cost of products, this is its most important task, the welfare of citizens largely depends on it," he told Izvestia.
Since 2020, the authorities have not resorted to state regulation of prices, although they have been actively using a softer instrument - regions have entered into voluntary agreements with some retail chains to limit their markups. In 2024, however, the situation was quite serious: the price of two socially important products rose sharply in the country. According to Rosstat, the prices for potatoes jumped by 81% in the year to December, and for butter - by 33%. This drew the attention of the authorities in general to food prices: as a result, the Federal Antimonopoly Service recommended all regions to conclude agreements on limiting markups with retailers. Experts previously told Izvestia that such fluctuations in the cost of goods push food inflation to exceed the benchmark of 9%.
Why trade is against limiting markups on products
Artificial interference in pricing may carry risks of imbalance, distortion of competition and ultimately shortage of relevant products, the Center for Strategic Research agrees with the financial and economic block of the Cabinet of Ministers.
- A long-term and effective solution to the problem - to contain inflation - is possible only with the help of market instruments, in particular, by maximizing the supply of goods. Various programs to support domestic producers, including those in the agricultural sector, are already in place for this purpose. It would be right to analyze them for efficiency and strengthen them in the most important areas," the organization told Izvestia.
Federal Trade is confident that the new measure will not help curb the rise in food prices. On average, more than 95% of the retailer's markup is due to costs associated with the sale of goods and business, Igor Karavaev, chairman of the presidium of the Association of Retail Trade Companies (ACORT), explained to Izvestia.
- These are logistics, rent of premises, salaries, taxes, utilities, maintenance of trade equipment, acquiring and others. It is impossible to regulate such costs administratively," he added. - Direct regulation of prices and markups violates market mechanisms and reduces the opportunities of market participants. The chains will be forced to transfer the main costs to the cost of other products, as a result, almost the entire assortment will become more expensive.
Setting a single trade markup for essential goods without taking into account the specifics and level of development of territories, retail costs and consumer demand may reduce the supply of socially important products. This may lead to their shortage and increase in cost, the expert noted.
International experience of regulating markups in the wholesale and retail sectors shows that such measures in a number of Latin American countries in the early 2000s, as well as the recent experience of freezing food prices in Hungary led to the emergence of shortages of some goods and the growth of the shadow market, recalled Igor Karavaev. Similar effects were recorded in Russia, when the authorities temporarily froze prices for sugar and sunflower oil.
Producers are sure that first of all production should be developed and the flow of products to the stores should be increased in conditions of competition, then the price of goods will be optimal, Dmitry Vostrikov, executive director of Rusprodsoyuz association, told the editorial board.
- To expand production, we need incentives with available investment money and cost reductions along the entire chain of supplying the agro-industrial complex with resources," the expert added. - If we help citizens in need, we need to choose targeted programs, rather than restraining prices for all consumers, which requires much more resources and reduces the interest of business in development.
Regulation of the markup is an extreme measure, and it should be done very carefully, having reliable information about profitability along the entire chain "from the field to the counter", he summarized.
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