The season of cheap vegetables is over: should we expect a surge in inflation

Borscht set predicted a new round of price increase

From year to year, approximately in mid-October, a mysterious turning point occurs on the Russian fruit and vegetable market: retail prices for tomatoes, cucumbers, potatoes, cabbage and other greenhouse and field products rush up. Moreover, this phenomenon is accompanied by ritual comments of officials, according to which we are talking only about a “small correction” of prices. In this enchanted world of vegetables, a bit reminiscent of the strange realities of the fairy tale “The Adventures of Cipollino” by Gianni Rodari, it is very easy to get lost.

Yes, there is a universal irrevocable factor of seasonal abundance, when in July-September chain stores and food markets are bursting with relatively (and sometimes absolutely) cheap vegetables and fruits. But then this season of fruitful abundance ends and it is replaced by the season of rising prices for the “borscht set”, and by the New Year holidays, prices reach peak values. Let’s take, for example, November 2020: cucumbers rose in annual terms by almost 40%, tomatoes – by 27.5%, potatoes – about 10%. Here it seems to be worth mentioning another seasonal trend that is already unfavorable for consumers: they say that the products of the new crop are mostly sold out, and either greenhouse offers from domestic farmers or more expensive imports prevail on the shelves. This is true, but not all. Such an explanation would be too simple and not entirely fair.

Indeed, in addition to seasonal and force majeure, there are permanent and systemic circumstances. They are much more weighty, but official departments prefer to remain silent about them. The same Ministry of Agriculture traditionally recognizes only one problem in the agricultural sector – natural disasters, mainly drought. The factor of seasonal fertility plays only at a “short distance”, it is not able to offset the endlessly growing costs of agricultural complexes for raw materials, storage, transport, logistics, fertilizers, and packaging. All this inflates the cost of any product. When the domestic goods run out on the shelves, this carriage of unbridled cheapness turns into a pumpkin hung with evil price tags. And this, by the way, happens not only in the middle of autumn, but also in early spring, when prices for cabbage, beets, carrots, potatoes, sometimes go off scale for 100 rubles per kilogram. And this spring – it was even more …

There is an acute shortage of storage capacity in the country, which is why farmers lose up to a third of vegetables. According to the Research Institute of the Ministry of Finance, the needs of the sector are met by no more than 30-40%, and in primary processing enterprises – by 20-30%. When the crop is harvested, it is necessary to save and process about 60-70% of the total volume, since only a small part of the production can be consumed during the harvest season. In recent years, the loss of potatoes has almost doubled the volume of its imports. Farmers and small agricultural producers are forced to leave part of the harvest unharvested in the fields if they fail to ensure the sale of goods in the season.

Farmers have to solve their production tasks in real time: this is the sowing campaign, and harvesting, and calculating the prospects for exports, shackled by all sorts of restrictions. In particular, the increase in the cost of freight and the refusal of shipowners to work with Russian companies. In this case, we are talking about force majeure specifically in 2022, which is superimposed on systemic problems. Today, due to sanctions, supply chains are broken, supplies are disrupted, contracts are broken, prices for seeds (on which vegetable growing depends by 80%), imported harvesting equipment and components, energy carriers, and mineral fertilizers are rising. Finally, labor costs are rising.

It is difficult to believe in the official thesis about a “slight correction” in vegetable prices. As well as the fact that inflation, according to the latest forecast of the Ministry of Economic Development, will amount to 12.4% by the end of the year. In September, Rosstat fixed it at the level of 13.7%, that is, in the time remaining until the end of the year, it should fall from month to month. But how is this possible, if further, in December, we are waiting for an unscheduled increase in housing and communal services tariffs, a New Year’s shopping rush, a weakening of the ruble – as imports increase, exports decrease and demand for foreign currency grows. And, of course, the dynamics of consumer prices is determined mainly by fruits and vegetables. In September, prices for it were at the lowest possible level – solely due to the seasonal factor. Now there is nothing holding them back.