Food Imports Growth Expected

Last year, Russia imported 21.5m tons of agricultural goods and primary products (except textile) for the total sum of $28.8bn. It is 6% and 15% more than the relevant 2016 indicators, respectively. Growth in agricultural product imports is underpinned by the data of the Ministry of Agriculture: in January–November 2017 Russia imported $25.7bn worth of agricultural products, a 16% increase on the relevant period of the previous year.

But food imports (not only agricultural products alone) are greatly influenced by the following two factors: households’ incomes and the RUR/USD exchange rate. The thing is that not all Russian products are competitive as regards price and quality, so people start buying imported goods as their incomes grow or the rouble’s exchange rate appreciates.

It is noteworthy that various indicators are utilized to evaluate income growth. For example, instead of the income index the sales indicators can be used. The behavior of the index of the physical volume of food sales (in comparative prices) is illustrated in Fig. 1. For clarity, the correlation of sales in each month of the 2013–2017 period is presented. If the economic situation was favorable, sales volumes increased.

As seen from the diagram, only from July 2017 retail sales started to grow slowly for the first time since August 2014. In December 2017, sales were higher than in December 2016, but less than in December 2015, December 2016 and December 2017.

Fig. 1. Indices of physical volumes of retail food sales, % on the relevant month of 2012

It is noteworthy that imports used to fall from August 2014. In 2013, they amounted to $43.3m, while in 2016, only to $25bn (a 42% drop). Imports sporadically grew in individual months (starting from 2015) when the rouble appreciated. However, an upward trend was observed only from 2017 when the rouble was fairly stable in the range of 1.98–1.78 of the exchange rate which prevailed in 2013 (Fig. 2). In December, imports normally grow even if the rouble depreciates, but in 2017 imports growth took place amid appreciation of the rouble.

Fig. 2. Dynamics of the rouble’s exchange rate (left-hand axis) and imports (right-hand axis) as compared to the relevant month of 2013

Dependence of the imports on the exchange rate of the national currency was observed during the 1989 crisis. A dramatic weakening of the rouble’s exchange rate in August 1998 affected greatly the imports. If in August 1998, the US dollar cost around 6.5 roubles, in October 1998 it was equal to Rb 15.5. That situation could not, but affect imports of foods and agricultural primary products: the value of imports fell from $13.3m to $7.3m or by 45% (Fig. 3).

Fig. 3. Dynamics of food imports before and after the depreciation of the rouble in 1998 and 2004

Imports started to grow only two years after 1998, having surpassed the pre-crisis level in 2004 and exceeded by 100% the 1997 level by 2007. Today one can see a repetition of the same situation.

No doubt that after the depreciation of the rouble Russian agricultural producers gained advantages. However, if the period of special advantages failed to be used for carrying out modernization, promoting labor efficiency and making Russian products competitive, imports would definitely grow. In addition, imports of products which can never be produced in Russia due to climate conditions will increase. It is notable that imports of fruits and nuts grew in 2017. This group of products accounts for 15% of the imports pattern.

Russian exports are growing, too. As compared to 2016, exports of food and agricultural primary products rose by 21.5% to $20.3bn. An important result of this year is that growth rates of imports lag much behind those of food exports: 15% against 21.5%.

Natalia Shagaida, Doctor of Economic Sciences, Head of the Agricultural policy Department, Gaidar Institute