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Russia Govt Says Rules Out Food Price Controls

Russia may cap domestic prices for essential pharmaceuticals to minimise the impact of the global economic crisis on its population, but for now will not control food prices, a top government official said on Tuesday.

Russia's economy is expected to contract by 2.2 percent in 2009 and the government is performing a difficult balancing act between supporting the retail sector, one of the major contributors to growth, as well as the population.

"In order not to cause more harm, we came to the conclusion that such a decision would not be wise," First Deputy Prime Minister Igor Shuvalov told reporters, referring to administrative controls for retail food prices.

However, Shuvalov said the government was looking into introducing maximum producer prices and retail markups for some essential drugs to bring down prices in Russia's $13 billion pharmaceutical market. "We have received information that there are many middlemen, which make their profits re-selling drugs from one group to another without creating any value in the pharmaceutical market," Shuvalov said.

He also said the budget funds should be primarily used to buy domestically produced drugs and said Russian pharmaceutical firms had the capacity to increase output of so-called "generic" drugs to fill the gap.

Shuvalov said Russians had started to consume cheaper, domestically produced foodstuffs since devaluation in the rouble had put imports out of reach for ordinary Russians, who became accustomed to better quality food during the oil boom years.

"We are not expecting a significant growth in population income in 2009. Therefore the food basket's price should be stable so that Russian families can plan their expenses and maintain the nourishment value they got used to," he said.

Food makes up over 40 percent of Russia's consumer price index (CPI) basket, making it highly sensitive to food price fluctuations. Russia made a deal with retailers last year to keep food prices down.

The government officially forecasts 13-14 percent inflation this year, much of it due to the rouble losing one-third of its value against the dollar since mid-2008, which led to a rise in prices for imported food.

Shuvalov said the government was primarily concerned by rising prices for beef, pork and poultry, while prices for bread and dairy products remained stable.

Russia imports a substantial portion of the red meat and poultry it consumes, and it regulates imports by tariff quotas. The United States is the top poultry meat supplier, while most of the pork comes from the European Union and Brazil.

Shuvalov said he expected pork and poultry output to rise by over 8 percent this year and said the government was looking into measures to help boost domestic beef production, which were unlikely to yield results this year.

Source:  Reuters

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