Food & Agriculture, Retail


Analytical commentary

August 6 will mark two years since Russia has restricted imports of goods from the countries that had imposed sanctions against it. The products that were put on the “forbidden” list belonged to major food groups and cost-wise accounted for some 18% of the average consumer basket before the embargo and the crisis. The embargo dampened supply on the local market, which naturally pushed up prices, especially those on fish and fish products (+60%) and cheese (+54%). However, more than two-thirds of this price increase was due to a coinciding surge in the exchange rate (+110% overall and +90% at the time of the most rapid change), which affected import prices across all product groups coming from all countries. In fact, embargo’s contribution to the peaking 17% of annual inflation recorded in March 2015 has hardly run into more than 1.5–1.7 pps, while further price growth related to prolongation of import restrictions is unlikely, as prices and consumption have fully adjusted to the new environment back in 2H15 or the very end of 2015 the latest.

An increase in local prices has significantly bolstered profitability of domestically produced agriculture and food products. Industries and companies that invested in capacity expansion before the ruble devalued or those that simply had spare capacities were able to expand production. The cheese market changed most noticeably: the share of imports in total consumption here dropped to 20-23% from 45-48% seen in early 2014. Historic lows are also shown by the proportion of foreign products in total meat consumption, as imported pork and poultry retreated from 16-18% to 9% and from 17-19% to 10-11%, respectively. Only beef consumption proved less sensitive to substitution effects. Of all restricted goods, pork has been among domestic production growth leaders, while the most dramatic production and consumption slump was shown by fish. Overall, the share of imports in the Russian food trade has squeezed from 34% to 22-24% in terms of cost. Of the new industries that saw an increasing investors interest in 2014-2015, one may point out the greenhouse industry, although this interest has not yet resulted in a significant increase in the greenhouse area.

Building up food production in Russia is hampered not only by capacity constraints, but also by real disposable incomes, which shed 11% over the last two years and the trend persists. Alongside import substitution, consumers continue to opt for products with higher calorie count per one real ruble spent: of all kinds of meat buyers prefer chicken, of all vegetables they tend to buy cheaper seasonal products. In future, a further shift of consumer preferences towards cereals, flour, butter and sugar may be expected.

Print version
Download PDF


Dmitry Kulikov
Director, Sovereign Ratings and Macroeconomic Analysis Group
+7 (495) 139 04 80, доб. 122
Natalia Porokhova
Senior Director, Head of Sovereign Ratings and Forecasting Group
+7 (495) 139 04 90
Maria Mukhina
Operating Director
+7 (495) 139 04 80, доб. 107
We protect the personal data of users and process cookies only to personalize services. You can prevent the processing of cookies in your browser settings. Please read the terms of use of cookies on this website by clicking on more information.