What will the artificial freeze of prices lead to?
While the government artificially fixes food prices and is engaged in an outright “nightmare” of producers under the pretext of stabilizing the cost of food, sugar market participants warn that by summer there will be a shortage of sweet sand in stores.
Recall that after the President of the country was outraged by the exorbitant rise in food prices (for 12 months sugar on the shelves rose by more than 70%), the government decided to regulate the price of sugar by directive. In December, the authorities banned the sale of sugar in Russia for more than 36 rubles per kilogram in wholesale and 45 rubles in retail. Frozen prices have led to the fact that the domestic sweet product has become almost the cheapest in the world. As a result, our colleagues from the countries of the Eurasian Economic Union began to actively buy cheap sugar at discounted prices. Kazakhstan was especially zealous, where Russia supplied almost 100 thousand tons of sugar in August-December 2020, which is 1.5 times more than in the same period in 2019. And this despite the fact that production this season we have a record low in five years. In turn, along with the speculative component, accelerated inflation, as well as the weakening of the ruble and the rise in exchange prices for sugar, influenced the price growth. This led to the fact that it became more profitable to export the product than to sell it domestically. The administrative price containment that the government went for only added problems to the market. It turns out that sugar is exported from the country on the cheap, to the delight of the citizens of neighboring states. But what will be left to our consumers?
It’s simple. An attempt to intervene in market processes by means of administrative regulation, at least in the sugar market, can lead to disastrous consequences – in the summer the Russians will face a sugar shortage. The tension created by the authorities by shamelessly intervening in the market will only spin the flywheel of price increases. After all, after manual price regulation is over (and this will inevitably happen in the very near future), the value spring will begin to expand. And where there is a deficit, expect a new rise in price, and much stronger than the previous one. It’s a vicious circle.
The market economy cannot be fooled. In other words, if you break into it with administrative methods, then if there is a positive result, it will be only local and short-term. In the long run, the effect will be the opposite.
But the costs of producers this year have grown significantly – and because of the lockdown, and because of the rupture of supply chains, and because of the weakening of the ruble. Neither manufacturers nor retailers will be able to sell products to themselves at a loss, even in conditions of the prices set from above. There is market pricing that meets the balance of supply and demand. Dealing with government regulation is the last thing. It would be much more useful for the state to solve the problem of expensive loans for farmers: a lower cost of loans could lower producers’ costs and reduce the price level.
Recall that the government initially mothballed prices for three months – from January to March 2021. But after thinking a little, the authorities decided to change their shoes and take their words back. The head of the Ministry of Economic Development and Trade Maxim Reshetnikov said that the officials did not intend to extend the freeze on sugar and butter prices. The final decision will be made later.
Have those in power really realized that there is no particular benefit from such an artificial fixation of the value of products? The plans of the Ministry of Economic Development and Trade are to manage the volume of products within the country through a change in export duties, and send the funds received to support producers. Also discussed is targeted assistance to those in need. Yes, the introduction of such mechanisms could help, but what’s the point, as they say, to wave fists after a fight. The freeze has already caused a lot of trouble for producers: according to forecasts, many agricultural producers will not be able to cover the costs, and some of them will have to leave the market. As for retail and ordinary consumers, there will be a sugar deficit in stores in the coming months. And this is clearly not what the authorities wanted.
The proverb says: “No matter how much you say the word” sugar “, your mouth will not become sweeter.” As the saying goes, taste buds cannot be fooled. No matter how much you try to persuade prices not to rise, they will not go down from this. The laws of a market economy cannot be fooled. As a result, you will only get a deficit and speculation.