Bread prices to take hit from drought

The Russian government says reports that Russia will have to boost grain imports are ‘groundless’ but bread prices seem set to rise.

Russians eat more bread a year than nearly anybody else in the world. So any change in price of this staple food can seriously impact the amount of money in people pockets. Because of its importance, bread is on a government list of basic products where price rises are subject to controls.

The Federal Anti Monopoly service is currently investigating a number of bakeries for imposing price hikes of as much as 20%.

But given the fact global wheat prices have soared 70% in the last two months, it's hard to see how consumers can be completely protected according to Victoria Sokolova, from Troika Dialog.

“All the inflationary fears that we have seen are not being passed on completely to the consumer. I think inflation may pick up in September. It will all depend on the economics and the market dynamics.”

The state’s decision to ban grain exports, which came into effect at the beginning of this week, will only do so much to control prices.

Domestic wheat consumption in Russia is approximately 75 million tons. The latest forecasts for the harvest fall well short of that according to Andrey Sizov, Managing Director of Sovecon.

“The forecast for this years`s full harvest ranges from 59.5 to 63.5 million tonnes . But it is also possible that we can even go below that figure. “

Russia does play an important role in providing the world with its carbohydrates. It was the third largest exporter of wheat in 2009.

But this year the weather has been so appalling that the farmland is unlikely to recover immediately when the rains come, having implications for the winter harvest and even next year's crop.