Belarus expects price-hikes and poorer product assortment

Russia’s embargo on food supplies from several countries will boost exports of dairy and meat products from Belarus. Due to certain raw material shortages, this may lead to a poorer array of products on the shelves of Belarusian retailers. Retailers could be prompted to cosy up to food producers to avoid penalties from state regulatory authorities for failure to comply with the assortment list regulations.

As of August 12^th, 2014, the Ministry of Trade resolution No 20 set the assortment list of domestically produced goods mandatory for sale binding all retailers. The assortment list stipulates that retailers are now legally obliged to stock a certain amount of Belarusian-made goods in their stores. (For example, supermarkets with an area of 1,000-2,500 square metres should offer not less than 10 types of Belarusian milk, 20 types of hard cheese, 30 types of yoghurt, 80 types of chocolate etc.)

Russia’s embargo on food supplies from the EU, Canada, USA and Norway will result in a shortage of food supplies, of meat and dairy in particular. Belarus is at the top of Russia’s list to meet her demand in meat and dairy. Belarus has calculated her exports of cheese to increase by 20-30%, dairy products by 30-40%, and processed meat up to 15%.

Dairy production is, of course, highly dependent on the availability of milk. If there is enough, Belarus can produce up to 150,000 tons of cheese per year. The domestic market consumes around 40,000 tons. Belarus’ attempts to produce more than 110,000 tons of cheese (for export) will mean that there is a shortage on the domestic market and so cheese will be imported from the EU. As a result, retailers will be unable to fulfil the assortment list regulation. The same is true for meat products, but additionally complicated by the existing deficit on the domestic market, which has already led to price hikes on meat and poultry – by 30.8% compared with December 2013.

Food manufacturers are now able to dictate the trade terms to retailers. Previously non-binding, but as of August 12^th, binding for all retailers, the assortment list regulation envisages penalties for retailers for non-compliance. The demand for exports of Belarusian cheese, butter, semi-processed meat will increase and food producers will have more options for selling their products. In addition, they may reduce their supplies to the domestic market, justifying this by greater export demand and foreign exchange proceeds. Retailers, in turn, will be prompted to accept the new terms of payment and delivery in order to avoid penalties. As a result, retailers’ financial health will deteriorate further.

Thus, unless food imports to Belarus increase considerably, prices on domestically produced goods will soar and product assortment will deteriorate. Domestic food producers might reconsider their trade agreements with domestic retailers in so as to obtain better financial terms of cooperation.