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Analysis: Global Food Crisis Catches Up With Russia

By RFE/RL analyst Victor Yasmann (ITAR-TASS) Food prices will be the biggest single problem facing newly minted Russian President Dmitry Medvedev. Over the last six months, hardly a single speech by Medvedev, Vladimir Putin, or other leading Russian political figures has failed to include mention of this burning issue.

And for good reason. Even as food prices rise dramatically around the world, the rate of increase in Russia has been roughly three times greater than that in the European Union. In April, the cost of basic foodstuffs rose in Russia by 6.4 percent, compared to 1.8 percent in Europe, according to official Russian figures.

Depending on the region, prices of basic products such as bread, milk, and meat have risen between 7 and 22 percent so far this year, moving inflation to the top of the list of Russia's national concerns. An opinion survey in March found that 39 percent of Russians view rising food prices as the biggest national problem, while 38 percent named inflation generally, and 27 percent named low wages. Just 8 percent of respondents mentioned corruption.

These findings are an early warning worth heeding in a country with a history of hunger-triggered political unrest, most notably the 1917 February Revolution that toppled Tsar Nicholas II. The Kremlin understands this and purchased a measure of political stability during the election cycle that began last December with three price freezes on basic consumer goods. Earlier this year, Putin asked Deputy Prime Minister and Finance Minister Aleksei Kudrin (who retained both posts after Putin moved to the premiership last week) to head a special commission on inflation and to report weekly on the status of prices across the country.

As the last price freeze expired on April 30, the government was preparing a special "food-security" law that would indefinitely fix the prices of seven "socially important" commodities.

Medvedev, who for the last three years has overseen an ambitious national project to revive the agricultural sector, has tried to contain the political damage that seems inevitable if prices surge following the expiry of the latest price freeze. He has said that a global food deficit is the main driver of Russia's food troubles, adding that if not for his efforts in recent years, the situation would be worse.

"It is very regrettable when you work and work and then this rubbish comes from the world market because of the mistakes of our colleagues in other countries," Medvedev complained. "And as a result the entire planet is suffering."

Leading Food Importer

Although food prices are, indeed, rising globally, Russia's leaders have downplayed the fact that Russia is one of the world's leading importers of food. As such, it stands to suffer disproportionately from the food crisis.

Among G8 countries, only Russia and Japan are net food importers. Russia imports about 46 percent of the food and agricultural raw materials it consumes each year. At a February 14 press conference, Putin revealed that some of Russia's largest cities import up to 85 percent of the food they consume. All in all, Russia imports 75 percent of the meat it consumes and half of the vegetable oil.

Still worse, Russian dependence on imported food is on the rise. Food imports increased by a factor of three between 2000 and 2006, and the primary reason for this is the ongoing decline of the country's agricultural sector. To take just one example, meat and milk production has fallen by half since 1990, and Russia's total cattle herd has declined to the level of 1918.

Despite all of Moscow's talk of its "sovereign democracy," the country has failed to boost its independence in this crucial arena.

According to figures released by the World Bank and the UN last month, global price increases for food are likely to continue, and accelerate, for the next decade. Russia's dependence on imported food has important domestic and international implications. Not only is it possible that food-related social unrest could disturb Russia's fragile stability, but it is also likely that the costs of supporting this habit could derail the Kremlin's ambitious plans to reshape the national economy.

The Kremlin will be forced to divert more and more of its petrodollar windfall from national-development projects to the purchase of food imports. In fact, this process has already begun, as the country is swept by a massive wave of consumerism. Despite the price increases, Russia's consumption of meat, for instance, has increased 5 percent in 2008 alone. To meet rising demand, Moscow reduced import duties. Naturally, this boosted imports, but that made domestic production less competitive and enraged Russian farmers.

Haves And Have-Nots

The food crisis is also exacerbating the gap between the haves and the have-nots. While the richest part of the population can afford to spend more on food and can even increase consumption, the poorest 20 percent -- those who already spend about 60 percent of their income on food -- find themselves sorely pressed.

On April 30, Agriculture Minister Aleksei Gordeyev (who likewise retains his post under the new regime) proposed dealing with this situation by adopting a so-called food-security law that would regulate prices of some commodities and increase state subsidies to the agricultural sector several times over. It also includes a provision that would introduce food stamps for the poorest Russians. Gordeyev's proposal has met with skepticism by those who see it as a relic of the Soviet planned economy and note that a similar plan was proposed by the Communist Party in 1997.

Such a plan would likely have inflationary consequences and would do little to resolve the food-production problem. Nevertheless, the Economic Development and Trade Ministry has compiled a list of the socially important food products that would be subject to price controls -- including bread, milk, vegetable oil, butter, eggs, salt, and tea.

The good news for Russia is that the country has available land and water resources to boost agricultural production. The bad news, however, is that this cannot be done quickly enough to forestall the social, economic, and political impact of its food deficit. The country simply lacks the workforce, the infrastructure, and the financial mechanisms for rapid development in this sector.

Russia's food problem also has an international dimension. In recent years, Moscow -- as a major exporter of energy to the European Union and the countries of the Commonwealth of Independent States -- has used its position of strength for political ends, arguing that it is the seller, not the buyer, who determines prices. Now Russia finds itself in the position of an importer of a vital resource that cannot be replenished domestically any time soon. Russia, for instance, imports 35 percent of its beef and 40 percent of its pork from the European Union.

Because of the humanitarian nature of food supplies, it is unlikely the Western democracies would openly use their leverage to pressure Moscow except in a crisis situation. However, the Putin-Medvedev leadership is aware of Russia's vulnerability on this point. In practical terms, this realization will serve as a natural constraint on Moscow's assertiveness in both the near and far abroad.

RFE/RL Russia Report

RFE/RL Russia Report

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