- Dances With Bears - http://johnhelmer.online -

HOLD THE FRENCH FRIES, MAKE THAT RUSSIAN FRIES – POTATOES AND THE SEPTEMBER RUSSIAN ELECTION



by John Helmer, Moscow 
  @bears_with [1]

The Russian potato is a hot potato politically for President Vladimir Putin. Much hotter than Alexei Navalny, and for a genuine, homegrown reason.

The Russian potato harvest suffered its worst fall last year since 2010. And the political chips will fall just as they did before – the public approval rating for the president, as well for  government ministers, is falling. The outcome in the State Duma election of 2011 was a swing against United Russia, the government party, of 15%; the swings in favour of the Communist Party and the Liberal Democratic Party were 8% and 12% apiece. That was the worst electoral rebuff Putin has suffered since he started in the year 2000.

Russian voters are like everyone else the world over. They blame hoarders and speculators when the price of staples starts to jump, and then government corruption for failing to stop them.  In January, compared to a year ago, the wholesale price of potatoes was up 75%. And it is getting worse. By April, the wholesale price is expected to grow by another 20%. Between now and next September, when the parliamentary election will be held, Putin must solve the potato problem.

The latest potato bulletin from Alexey Plugov of the Agro Business Center of Moscow (AB) [2],   indicates that last month the wholesale price of a kilogram of potatoes was Rb14.9; the retail price was Rb30.06. Compared to January of 2020, the wholesale price has rocketed by 75%; the retail price by 39%. And Plugov is predicting worse to come. “The reason for the increase is the amount of harvested potatoes – 7.6 million tonnes in 2019 compared to 6.8 million tonnes in 2020. We expect the wholesale price to reach Rb18/kg until April 2021.”

This has next to nothing to do with Covid-19. “The influence of the pandemic on the market is insignificant – less than 5%”, Plugov adds.

The decline in the volume of the harvest was 11%; the principal reason for that was bad weather, prolonged and heavy rains in the main potato-growing regions of the country west and south of Moscow, as well as in the Urals. The reason for the jump in price, according to Oleg Deripaska, the aluminium oligarch who owns a large agricultural combine called Kuban Holding in Krasnodar, is that the Central Bank is keeping Russian bank interest rates too high. He said [3] interest rates in Russia are “usury” – they should be cut to European and US levels. Deripaska was warning Putin the price for oligarch support in the coming election is more and cheaper state money.

Right: Oleg Deripaska serving the President draniki with bread and Kievsky cutlet on board Deripaska’s airline, Kuban Airlines.  Source: http://johnhelmer.net/ [4] 

On January 21 Putin told government ministers he knows the score, but isn’t to blame for it. “Unfortunately,” Putin said [5], “last year saw a greater inflation rate, which exceeded the inflation target announced by the Bank of Russia and amounted to 4.9 percent. Some groups of commodities, primarily foods, saw a more sizable price hike of 6.7 percent. And these are only average figures. However, there was a significant, noticeable surge in prices of certain categories of commodities, due in part to increasing global prices of food products as well as a number of other factors, of course.”  

Of course. Muscovites, the most politically sensitive group in the country and the group most likely to demonstrate  their opposition to government, told the Levada polling agency in January that prices are their biggest problem by far.

Source: https://www.levada.ru/ [6]

Plugov said he is expecting the market to right itself with a combination of a better harvest this  summer; and in the meantime,   increased imports of potatoes from Egypt, Azerbaijan, Belarus, China, even Israel [7](which sells a washed, bagged, premium-priced potato).   “During the period of September 2021 to April 2022 we expect the decrease of prices, because of increase of both import and domestic production.”

The growers are less confident. They say waterlogging of the soil last year led to a reduced planting area for this year’s harvest. Plugov estimates that the plantation for this season is about 8% smaller than in the 2019 season. At best, he and other experts are predicting a 2021 harvest of around 7.1 million tonnes – better than last season’s, but not as good as the year before. Without imports, there will be pressure on potato prices to grow all the way to election day.

The Russian potato harvest has generally been gaining since 2010, as the following chart shows. But the land bankers, food oligarchs and the agro-industrial sector – yellow band on the chart – have been contributing less to the harvest growth than the small private farmers and the dacha growers from the cities. It is the latter group who are directly exposed to the rising price of the potatoes they haven’t managed to bring to the table from their own plots.   

Source: https://agrovesti.net/ [8] Dacha planting and  private farming have a relatively low influence on the market price, according to the experts. The harvest trend for the private potato farmers is also declining because the younger generation of Russians prefers buying and eating to digging and growing. For the time being, though, the privately grown potato puts a limit on the margin of profit which the agro-industrial combines can charge for their production. So they prefer to invest in grain, sunflowers, buckwheat, milk, and meat. For a profile of how the Russian urban middle class likes to buy and eat, read this [9].

On account of Mother Nature, Russian potato pricing is cyclical through the year. The following chart shows the dynamic of the wholesale price per kilogram of potatoes through the season, starting in June and ending in May. The top line shows how much more expensive potatoes are this season compared to the past five years.  

KEY: yellow=2015-16 season; blue=2016-17; light blue=2017-18; grey=1018-19; green=2019-20; dotted=2020-21; Source: https://agrovesti.net/ [8]

The immediate political solution has been the Russian stand-by – administrative measures. Since January 15 a surge in notices from the federal agriculture and industry ministries have told the big grocery retailers to cut their maximum prices for potatoes, bread, cooking oil, sugar,  eggs, and other staples. In practice, this means a cut in the profit mark-up for the retailers. Pushing down on wholesale prices isn’t so straightforward.

One problem is that Russian growers have preferred to import potato seeds from abroad because they are (were) more resistant to disease and they generate higher yields per hectare. Russia is still the second largest producer of potatoes in the world – trailing far behind China, but ahead of India and the US [10] . But harvest yield is low and the quality of the tuber is not what it was in Soviet days. Imported seed is doubling in price, and not only because of rouble devaluation. State spending on plant breeding and seed genetics has been cut – the agro-industrial groups don’t compensate. Dutch and German seed suppliers captured a share of the Russian market by offering dumping prices until Russian dependency was established. “They sell not only seeds, but entire programs,” commented Boris Anisimov, deputy scientific director of the Lorkha Research Institute for Potato Farming [11], near Moscow. “That is, we have practically tied our potato growers on all points, from seeds to machinery. And when the economy is already completely ‘hooked’ on their system, new terms of contracts are dictated.”

Of the top-10 potato varieties [12] grown in Russia at present, six are German, three Russian, and one from Belarus.

Left, Bellarosa, leading German variety; right, Charodey, leading Russian variety. Per capita consumption [13]of potatoes per annum in Russia is around 133 kgs, the fourth highest in the world after Belarus, Ukraine and Latvia. The UK average is about 86 kgs; the US average is about 50 kgs.  

A Russian plant geneticist, Alexei Mileshin, concedes “it is difficult for us to compete with Europe. For ten years we are seriously behind in genetic development. It’s technically for lack  of funding. When we are funded, we are developing… But recently firms which  have worked with foreign suppliers are starting to look at the domestic range. After all, many Russian potato varieties differ favourably from foreign ones in their resistance to late blight. Some farms, having ‘eaten’ foreign seeds and technologies, are now returning to domestic breeders.”

The three largest potato producers in the country are KFKh Bogomaz (Bryansk), Agrofirma KRiMM (Tyumen), and Belaya Dacha (Moscow region). The Belaya Dacha holding [14] has recently announced [15]  that it is dividing its assets and shareholdings, so that the potato processing business will now be owned by Vladimir Tsyganov, a former chief executive of the group, while the vegetable and salad business will be retained by Victor Semenov, the holding’s  founder and a former agriculture minister.

Left, Vladimir Tsyganov; right, Victor Semenov.

Tsyganov’s division of Belaya Dacha has been diversifying its potato production, and has drawn investment from The Netherlands and Canada for factories to turn the Russian potato into processed products, like chips in various styles, cuts, and flavours, as well as potato mixes and potato combinations with smetana, dill, mushrooms,  and onion. The McDonalds fast food chain has been a major customer.  

Tsyganov is betting on the new Russian generation’s demand for variety in fast food – and that means variations on the French fry.

Source: https://www.reddit.com/ [16]

Politically, however, it will be price, not shape, flavour, or topping which  links the fate of the Russian potato to the outcome of the parliamentary vote.  Raising the cash value of the consumer budget for low-income Russians will be the short-run solution. Chips with cheese can wait.