President of Russia Vladimir Putin: Mr Reshetnikov, we have discussed monitoring the market of essential products several times. I know that the ministry has been closely involved in the monitoring. Initially, we agreed that, obviously, this control must be part of market procedures and market instruments and there must not be any administrative pressure. I would like to talk about this further. Also, I would like to hear about the ministry’s assessment of socioeconomic development in 2020. I believe that you already have the preliminary data on some of the performance indicators and, perhaps, even the final data. Go ahead, please.
Minister of Economic Development Maxim Reshetnikov: Yes, Mr President, indeed, the issue of prices is currently our priority. We had to deal with a spike in prices in the fourth quarter of 2020 – primarily, food prices. Right now, this is the biggest risk both for the growth of incomes and for macroeconomic stability in general. We took immediate action as per your instructions. The package of measures we adopted is based on two approaches. The first approach includes administrative measures such as agreements on indicative prices with both food producers and retail chains.
Vladimir Putin: And you are offering support to food producers as well, aren’t you?
Maxim Reshetnikov: Absolutely, it is part of the whole package of administrative measures. The producers and the retailers are generally abiding by the indicative prices we specified. The Federal Taxation Service has been watching this and the Federal Service for National Statistics has confirmed this. The prices of sugar bounced back from the mid-December peaks and sunflower oil prices have stabilised.
But, of course, you instructed us to primarily focus on regulatory measures. Therefore, we adopted an extensive package of measures pertaining to economic regulation.
Regarding sugar, a programme of soft loans for sugar producers is stipulated, designed to expand the area under crops and sugar-processing volumes. We have resolved the second matter and introduced export duties on sunflower seeds, so as to keep them in the country and to facilitate production. In late 2020, we also introduced export duties on soy crops because soy is our main product. Understandably, this includes soy oil and soybean meal, used as fodder in the poultry-breeding and livestock-breeding sectors.
And, of course, we prioritised grain and introduced grain export quotas from February 15 to June 30. These quotas total 17.5 million tonnes, we charge prohibitive export duties on surplus amounts, while within the grain quotas they stand at 25 euros per tonne of wheat. At the same time, we introduced subsidies for bread bakers and millers. In effect, we have allocated five billion rubles for millers, so that they purchase food-grade grain and so on.
Earlier this year, we found out that these measures were not enough because global market prices of Russian wheat had soared by 20 percent between October and December, then by another 12 percent between mid-December and mid-January.
Vladimir Putin: Unfortunately, the global food market situation is getting worse.
Maxim Reshetnikov: Yes, you are absolutely right because several factors have simultaneously come into play. First, all major importing countries have expanded their food-reserve purchases. On the other hand, some grain-producing regions have issued unfavourable grain-harvesting forecasts. To be honest, there are sufficiently large speculative capital volumes. We can see that these moods and other factors have an impact on prices. As Russia currently ranks among the largest wheat exporters, our decisions also influence the market.
Vladimir Putin: It is probably the largest.
Maxim Reshetnikov: Yes, the largest.
So, what happened? We have analysed this entire situation, and the Government has decided to double wheat-export duties within the 17.5 million tonne quota. It has also introduced barley and corn duties because these aspects are interlinked.
Most importantly, Mr President, the situation shows that all measures will be kept in place until June 30. And, of course, producers want to know what will happen after June 30, and what their prospects are. They will hoard wheat, unless we provide them with a predictable scenario, and they will wait until all restrictive measures are lifted.
This is why we are currently developing a permanent mechanism, which will be launched on April 1 for an indefinite period. This price damper is to prevent the projection of fluctuations and high global prices into our domestic market.
How will this mechanism work? It will consist of two components. The first component is the export duty that will be subject to change based on predetermined rules. The way it works now is we conduct an analysis and charge the export duty on a case-by-case basis; therefore, exporters and producers do not always understand how much they will have to pay.
Vladimir Putin: This is one component. And the other component is support for the producers. There must be a clear understanding of the scope of support available to the agricultural and processing industries.
Maxim Reshetnikov: Mr President, you supported this idea and made it a condition that all the money we collect must stay in the agricultural industry because the purpose of this mechanism is not to recover budget funds but to ensure, on the one hand, that our domestic prices are stable, transparent and affordable and, on the other hand, that producers have the motivation to develop further and expand their cultivation areas, processing capacities, and so on. Therefore, the second component is a mechanism that will return all the money to the agricultural producers. Our ministry and the Ministry of Agriculture are currently considering a mechanism based on subsidies in proportion to area size.
Vladimir Putin: Bearing in mind the Government’s policy expectations and actions, when do you think all these mechanisms that you have described can and should be developed? Did you say some time after June?
Maxim Reshetnikov: No, the Prime Minister instructed us to develop this mechanism within a month and to obtain the Government’s approval.
Vladimir Putin: Within a month?
Maxim Reshetnikov: Yes, March 1 is the deadline we set ourselves because it must be launched on April 1.
Why, Mr President, do we have to resolve these not so much difficulties, as tasks. For example, we do not have our own grain market indicator. For reference, Russia is the largest grain exporter, but we urgently need to develop exchange trade, so that we have our own grain exchange with a significant turnover, and our own market indicator. We understand what needs to be done, and the Prime Minister has set the same tasks, so we will work on that. But before that, as soon as April 1, we plan to launch contract registration. I mean, we will also take one of the exchanges, and all exporters will register their contracts.
Why is this important? Because we could certainly take the customs service’s price, for example, as the indicative price. But that would come from old contracts, so by and large, that would be an irrelevant price – 230 or 240 in that old contract, when new ones are concluded at 300. We will not be able to protect our market. That is why it is so important for us to establish that indicator. And we are working on it now.
Furthermore, we have really gained a very strong foothold, from the exporter perspective. And we are working to ensure that exporters fulfil their contracts in any case, so that they do not let their counterparties down, otherwise someone will take our place in the world market, and it will be difficult to regain the positions.
Vladimir Putin: I understand perfectly.
Maxim Reshetnikov: But, Mr President, the main idea today is that, due to this damper, we can use the funds that we receive from foreign markets, and return them to our agriculture in the form of additional investment.
Vladimir Putin: Good.
But, in the end, the consumers in Russia should feel that all the efforts the Government is making in this area are yielding the expected results for our citizens.
Mikhail Reshetnikov: Mr President, this is our main task. This is what we are doing on a weekly basis, as per your instructions.
Vladimir Putin: Please do not delay the elaboration of these measures, which you have just mentioned and which are expected by agriculture and food producers.
And the second, global question is about the 2020 performance results.
Maxim Reshetnikov: Mr President, allow me to report the main highlights.
The first point to start with is that the national economy actually suffered much less last year than we had estimated back in the middle of 2020. And now, as other countries are releasing their results, we see that we really got through last year significantly better than other major economies.
Vladimir Putin: How big was the decline in Europe? Over 7 percent?
Maxim Reshetnikov: Yes. They are now adjusting the figures for specific economies. There are large economies that have seen a 9 percent contraction each; Germany, 5 percent, which is smaller. But Russia looks very, very confident amid other countries. The latest more precise figures from Rosstat are actually higher because some companies are a little late with reporting.
Vladimir Putin: That is, in fact, our situation is better than in almost all EU countries, and better than in the States.
Maxim Reshetnikov: Yes. And this is a direct result of the measures taken.
Vladimir Putin: Of course.
Maxim Reshetnikov: I would like to mention the most important ones – the simultaneous easing of two state policies, the monetary policy, and the budgetary policy. Moreover, monetary policies included cutting the key rate as well as large programmes for subsidising business loan interest, and mortgages of course. Those measures have obviously worked. We reported to you about this.
The second point was the easing of budgetary policy. Unlike in other countries, when Russia’s federal revenues were shrinking, its spending was still growing. Last year’s federal budget expenditure grew by 25 percent. That also provided powerful support, which was especially evident in terms of people’s incomes. If we look at people’s incomes, their real wages showed an estimated growth of 2.2 percent, and social payments from the budget and social funds increased by 16 percent.
We still have a negative growth estimate for people’s real incomes, of course – down 3.5 percent – but that happens because of a decrease in entrepreneurs’ income, income from bank deposits and informal employment.
Vladimir Putin: And the self-employed – the segment most affected by the pandemic.
Maxim Reshetnikov: Yes, these affected industries. You instructed us to review the situation and take additional measures without delay.
Vladimir Putin: Yes, do not delay, because it is also a very important point. People do need to understand their options, to know what will happen in the near future – what can be written off and what cannot, if there are any other ways to support them and what the Government is ready to do in this regard.
Maxim Reshetnikov: This process is under special review. We met twice last week and are working on these measures.
Vladimir Putin: Regarding the foodstuffs market, including the grain market, we should, of course, think about this. The same is happening on our energy market. Although Russia ranks among the largest producing countries, we are guided by data from foreign exchanges. The same can be said about grain.
Of course, we now need at least summary data on contracts, etc., as you have said. But, of course, we have to expand such tools here. I do not see why not, all the more so as Russia is the largest wheat exporter. Why cannot we have all this on our territory? We will work carefully and thoroughly, step by step. It is impossible to accomplish this overnight because it is a difficult process. This is understandable, and the matter has thousands of aspects. But we will never accomplish this, unless we start acting.
Maxim Reshetnikov: Mr President, we have worked on our mistakes to some extent, and we can see that this entire situation highlights additional opportunities because the existence of these exchange indicators will allow our agricultural sector to take out loans more actively and to expand trade.
Vladimir Putin: This did not even amount to mistakes because we were simply unable to do this in the past, given that the country’s agricultural sector did not function so intensively and did not yield such impressive results.
And what about export subsidies?
Maxim Reshetnikov: We have completed our 2020 export-subsidy programmes. In 2021, no additional export-subsidy measures will be required, considering such volumes and such global prices. This is true. But I believe that, on the whole, we will decide on the overall situation sometime in March or April and report back to you. Because crop expectations are very important.
For example, we have stockpiled unprecedentedly high reserves earlier this year, and we have just compared our statistics with the Ministry of Agriculture. In early December, such reserves totaled almost 82 million tonnes of grain. We have therefore set maximum grain export quotas at 17.5 million tonnes from February 15. These quotas totaled an estimated 3–3.5 million tonnes earlier this year.
This is the maximum amount that can be exported. Consequently, this will total 20–21 million tonnes in the first six months of 2021, as well as 60 million tonnes reserved for the second six months.
We will predict future harvests in March and April, and we will assess which export tasks we can accomplish, while realising that the provision of our domestic market is a top-priority task. The thing is that wheat accounts for all food-grade flour and livestock fodder.
Vladimir Putin: Of course.
Maxim Reshetnkov: These sectors are also huge, and they employ hundreds of thousands of workers.
Vladimir Putin: I was referring to the overall range of support tools for non-commodity exports. What do you think about the government’s efforts in this area?
Maxim Reshetnikov: Mr President, first of all, as of the end of last year, the non-commodity exports added three percent. In other words, we are increasing our non-commodity exports even despite all these difficulties and the disruptions in the value chain and supplies. It means that the measures we took in the past (primarily as part of the national project) have been successful and the system is working.
Moreover, last year we implemented additional measures under programmes to support marketability. And the second mechanism was launched. In general, the same projects were propped up from both sides, including by agreements to protect and encourage capital investment because exports are not only coming from companies that already operate but from newly created production facilities as well. Of course, we expect that export volumes will continue to grow this year and next. Also, we slightly upgraded the export project to make it more target-oriented thanks to the experience that has been accumulated. A platform for exporters was developed.
Engaging small and medium-sized businesses in exports is a separate task. Of course, electronic platforms and other tools allow many more exporters, including from the provinces, to export. They could not even imagine doing this before these electronic platforms came about. Consequently, we can create substantially more jobs in exports.
Overall, our economic growth is around 15 percent dependent on exports, which is a significant proportion. Our policy of the past years was geared towards this result and the new measures are an extension of this policy. Consistency is key because these are long-term processes. This is why we are very carefully developing the entire toolkit that was created.
Vladimir Putin: At one of the recent meetings, you reported that as of the end of 2020, the unemployment rate in Russia was even lower than you expected. What is the current state of the labour market?
Maxim Reshetnikov: Yes, the highest unemployment rate was 6.4 percent, in August. I should stress that this statistic is based on polling.
We have come down from this peak to 5.9 percent. Again, this is objective data based on polls. This figure is not based on the unemployment records where the rate has gone up due to the fact that unemployment benefits are higher and more accessible now, along with other social support. The 5.9 percent is the objective rate. Our pre-pandemic unemployment rate was below 5 percent, around 4.6 percent.
You have set the task of restoring employment. We can see it happening. The manufacturing sector did not shrink last year, but actually added 0.3 percentage points. So, manufacturing is in the black, agriculture is in the black, and construction has almost recovered. It is clear that we still have some unavoidable problems in the extractive sectors, with OPEC +... But we are making every effort to address them, otherwise we would not have achieved such budget revenues. And so on.
It is clear that transport is in a disadvantaged position due to the travel restrictions.
Vladimir Putin: With the volume of traffic.
Maxim Reshetnikov: Yes, but that will rebound as the epidemiological situation improves. And of course, our main task now is to support small and medium-sized businesses. As you said, help the affected industries, and without delay.
Vladimir Putin: And transport is an affected industry.
Maxim Reshetnikov: And transport, too.
Why transport is so important. Honestly, we always view subsidies to passenger transport such as commuter companies as expenditures. But in fact, those are investments in the employment market, where we cannot just go and create more jobs at any point. But if we provide transport and economic accessibility… And what about our subsidies for passenger rail transport? This means lower fares, and ultimately, people’s ability to get to work. That is why this is also very important. The fact that, on your instructions, additional funds were found for it in 2020 actually means additional support for employment, if you take a broader perspective on it.
Vladimir Putin: What do you think is the most effective tool in this area?
Maxim Reshetnikov: Well, let us consider the situation. We are now working on a new tool to maximise the involvement of employers in these processes. It is clear that we have a big investment programme, new projects, and such. But it takes time and extensive training programmes. At the same time, it is much more effective when we support employers who are ready to develop and expand, so that they could hire people from employment agencies maybe, and perhaps train them. We could subsidise them for a while, modest amounts to support salaries, so that they would continue to be interested in these people working.
Vladimir Putin: We did so during the acute crisis amid the pandemic, we did exactly that.
Maxim Reshetnikov: We are now working on proposals for expanding this programme, using that experience, working with the Ministry of Labour and Social Protection, with Minister Anton Kotyakov. Because we will definitely need a reserve of 150,000–200,000 jobs in order to cement this. We reported to you earlier, Mr President.
Vladimir Putin: Yes. We need to see through these proposals, to have this entire toolkit ready for use, if necessary.