Russian food "barons" threatened with rising food prices

Producers of bread, lemonade, sausage and milk were concerned about the proposal of the Ministry of Industry and Trade to increase duties on the import of equipment. The share of imported machinery in the industry is 80-100%. The increase in duties may affect prices, they warned.
Origin source
The Ministry of Agriculture has asked the Ministry of Industry and Trade to increase the import duties on machinery and equipment for the food and processing industries of food producers. The relevant letter (a copy of the RBC) department of the food and processing industry of the Ministry of Agriculture sent industry unions and associations on Thursday, June 7.

The receipt of the letter from RBC was confirmed in particular by the Union of Soft Drink Producers (Coca-Cola, Narzan, Progress), the Confectionery Industry Association (ASCOND, Mars, Nestle, Mondelez in Russia), the National Meat associations (Miratorg, Cherkizovo), the National Union of Milk Producers (Danone and PepsiCo), the Russian Union of Bakers (its companies produce 70% of the bread of mass demand).

Now the zero rate of import customs duty applies to the import of equipment for the food industry. From the annex to the letter it follows that the Ministry of Industry and Trade proposes to raise it to the level of the final rate for WTO obligations - depending on the type of equipment, it ranges from 3 to 10%. The list of goods for which duties are proposed to be increased include equipment for the production of soft drinks and juices, processing and processing of milk, equipment for the production of bakery and confectionery products, for the brewing industry, processing of sugar, meat and poultry, equipment for packaging food products.

Support the domestic manufacturer

To raise duties on imported equipment for the food industry, the Ministry of Industry and Trade offered in April. To develop domestic machinery for the food and processing industry, the Ministry of Industry and Trade has developed a special strategy for the period up to 2030. The document says that due to the lack of trade barriers for foreign manufacturers, the share of imported equipment in the Russian food industry over the past five years averaged 70%. In some segments of the market (for example, in the meat and poultry processing industry), domestic producers are practically not represented, the document says. According to the plan of the Ministry of Industry and Trade, until 2030 the share of domestic equipment for the food and processing industry in the Russian market should reach 62%.

Manufacturers of food products opposed the initiative of the Ministry of Industry and Trade. Interviewed by RBC representatives of trade unions indicate a dependence on imported equipment due to the lack of domestic counterparts. For a long time no one has been engaged in designing and developing new types of equipment for the food industry in Russia, and most of the products are produced on foreign production lines, and do not have domestic analogues with modern packaging lines and packaging materials, Dmitry Vostrikov, Executive Director of Rusprodsoyuz Association, explains.

In the soft drinks industry, the share of imported equipment is 80-90%, says Maxim Novikov, president of the Union of Soft Drink and Mineral Water Producers. In the meat processing industry, the share of imported equipment is close to 100%, estimates the head of the Executive Committee of the National Meat Association Sergei Yushin. Modern enterprises have slaughter, processing and packaging lines equipped with equipment that is imported from Europe and the United States, he points out. In the pig industry, after the devaluation of the ruble in 2014, there is a gradual but very noticeable substitution of the import of components, but there are no analogues for technologically sophisticated refrigeration equipment, climate equipment and air conditioning systems, he admits.

In the confectionery industry, the share of domestic equipment is about 20-25%, says Vyacheslav Lashmankin, Executive Director of the Confectionery Industry Association. Russian equipment is mainly used in the confectionery industry for the production of traditional kinds of sweets: marshmallow, caramel, gingerbread. But in more modern segments of the confectionery industry, for example, in the production of chocolate and chocolates, mainly imported equipment is used from Switzerland, Germany, Italy, adds Lashmankin.

Equipment in price

While Russian machinery is not ready to provide analogs to the food industry that are not inferior to imports, the increase in duties is a premature step, food producers say. Domestic mechanical engineering will catch up with advanced foreign companies for another five to ten years, there are successful solutions, but complex technological solutions are not sufficient, the Russian Bakers Union (RSP) points out. The increase in the rates of imported customs duties on machinery and equipment, including bakery, will lead to a rise in the cost of necessary high-tech equipment for bakeries by at least 10%, the representative of the union is convinced. "The increase in the cost of purchased equipment will affect the selling prices for food and the pace of technical re-equipment," he expects. Growth of producer costs in the medium term "will affect the cost of the final product," Novikov agrees.

The increase in duties could have a negative impact on production, Lashmankin warns: because of the rising cost of equipment, those companies that planned modernization of production can freeze projects, which will lead to lower production volumes. The export potential will decrease, due to the growth of the cost price, the representative of the CPR points out. "The implementation of the task of increasing non-raw exports of processed food products directly depends on the successes of domestic machine building," he adds.

The request of the Ministry of Industry and Trade to agree on the increase in duties looks somewhat inappropriate, given that at the end of May, manufacturers of confectionery and equipment for them within the framework of a working group under the Ministry of Industry and Trade agreed to compile a list of the types of equipment produced in Russia, and based on this, Lashmankin. The duty as a measure of stimulation of domestic producers can be considered, but it is necessary to determine for which segments it needs to be introduced, he believes. In those segments of the confectionery industry where there are no analogues of imported equipment and will not appear in the medium term, it is pointless to introduce a duty, "it will be an additional tax for confectioners," he adds.