Why new restrictions are needed
The explanatory note to the bill says that now foreign companies can acquire Russian companies to bring their products to the Russian market. Basically, such manipulations occur in areas where there are restrictions on the use of foreign high-tech products and technologies. “This situation can negatively affect the overall level of ensuring the defense capability and security of the state, including the technological, informational and economic stability of the state,” the note says. The adoption of the bill should allow “to reduce the possibility of foreign influence on domestic companies in the production of information technology and high-tech equipment,” its author expects.
FAS accused Severstal, NLMK and MMK of monopolistically high prices
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Konstantin Dolgov, in a conversation with RBC, emphasized that the norm is universal and can be applied to any sector of the economy. It can be used to regulate the metallurgy market and retail chains, he cited an example. “Recently, we have all seen in the media how prices for rebar and food products were manipulated by companies headquartered in foreign jurisdictions,” Dolgov explained. — Such irresponsible behavior actually creates distortions and increases the risks of economic security in certain sectors of the economy. Ultimately, price manipulations hit the wallets of citizens and the state budget, primarily in the construction of social facilities.”
In the spring of last year, the FAS launched an investigation into metallurgical companies due to suspicions of unreasonably high prices for their products. At the end of December 2021, the service published a preliminary conclusion on this investigation, accusing Severstal, Magnitogorsk Iron and Steel Works (MMK) and Novolipetsk Iron and Steel Works (NLMK) of setting monopoly high prices. Some of the listed companies’ shares are traded on the London Stock Exchange, but control over the companies belongs to Russian businessmen. Sergei Grishunin, Managing Director of the NRA Rating Service, recalled that the FAS investigation into the validity of the increase in prices for rebar and other rolled steel is still ongoing.
Speaking of manipulating food prices, the senator could have been referring to information that appeared in the media in early 2022 that some transnational food manufacturers operating in Russia had warned retail chains to increase prices for their products, RBC’s source on the market suggests. French dairy producer Danone recently warned about price increases for its products, Kommersant reported: from February, its selling prices will increase by almost 10% due to rising production costs and higher packaging prices. The Russian division of the Finnish producer of bread, bakery products and chocolate Fazer Group also warned its partners about price increases by 16-30% since February: production costs increased by 18.4%.
Severstal wrote to the Prosecutor General’s Office about pressure from the head of the FAS
Sergei Grishunin believes that price collusion in the market for rebar and other rolled steel is unlikely to be proven. “Prices in Russia are traditionally determined on the basis of import parity, but last year, simultaneously with the growth in prices for rolled products on world markets, which exceeded 70-80%, there was also a weakening of the ruble against the backdrop of a persistent increase in gold and foreign exchange reserves. In this regard, prices on the domestic market simply could not help but grow,” Grishunin said. He recalled that as a result, the government introduced export duties, which “really reduced the parity price for the Russian market,” and subsequently a tax on excess profits in the form of an increased MET on metals and an excise tax on steel. Grishunin suggested that, if the senator’s initiative is accepted, potential restrictions could include the possibility of introducing new export duties and obligations for suppliers to ship products under state orders at fixed prices, subject to a reasonable level of profitability, as is currently the case with state defense orders.
How will the initiative affect the market?
The Ministry of Justice has already opposed the senator’s initiative. According to the recall of this department (available to RBC), increasing the level of technological, informational and economic stability does not apply to the issues of defense and security of the state, and the proposed norms contradict the Russian Constitution, will create restrictions and risks for Russian companies with foreign participation and lead to a deterioration in the investment climate in Russia. The representative of the Ministry of Justice confirmed that they received the initiative of Konstantin Dolgov and sent their feedback on it, but he did not explain its essence.
Baguette manufacturer warns retail chains about rising bread prices
The representative of the FAS also said that the department had submitted its response to the initiative, refusing to explain the details. RBC sent a request to the Ministry of Economic Development.
There is no logic in the senator’s initiative to limit the rights of companies with foreign owners, because the state has been pursuing a reverse policy for a long time: it encouraged foreigners to open offices in Russia, build production facilities, pay taxes in the country and provide jobs, that is, to work like Russian companies, the executive notes. Director of the Association of Producers and Suppliers of Foodstuffs “Rusprodsoyuz” (unites more than 400 companies) Dmitry Vostrikov. According to him, now almost all multinational companies operating in Russia have local enterprises and produce products here. Most transnational companies in the food industry, according to Vostrikov, are concentrated in the production of beverages, dairy products, breakfast cereals, as well as in the confectionery industry.
How the authorities kept prices for sugar and sunflower oil. infographics
Defensiveness and price manipulation are in no way connected – such manipulation is impossible in principle, including because it does not affect socially significant products, Vostrikov believes. Foreign manufacturers specialize in marginal products and unique products that are not produced by domestic enterprises – this allows them to avoid state regulation, which in Russia covers socially important products. Given the success of domestic import substitution and the level of food security in crop and livestock production, Vostrikov sees no risks: Russia not only provides itself with food, but also exports it abroad. But potential restrictions for foreign companies and their Russian representative offices may affect the investment attractiveness of the Russian market, as well as the development of competition, the expert notes.
In the food industry, price manipulation by individual players is almost impossible, because this market in Russia is very competitive, says Artem Belov, CEO of the National Union of Milk Producers (among its members are Danone, PepsiCo, Valio, Hochland, etc.). To talk about manipulation, one must at least imply some kind of monopoly, but in Russia there is no such monopoly either in agriculture or in the processing of agricultural products, RBC’s interlocutor continues: both transnational and local players work in the industry, there are a large number strong regional companies.