:. Food Industry News


Russia Retailers Agree Trade Controls After Putin Rap

Source: Reuters
02/07/2009

Moscow, July 2 - A scolding by Prime Minister Vladimir Putin ringing in their ears, Russian retailers are set to accept tough rules on trade in a new draft law but will escape outright price caps, a business lobby said on Thursday.

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A draft agreement worked out by Russian retailers and their suppliers, and provided to Reuters by the Delovaya Rossiya business lobby, said that the state can directly regulate retail mark-ups only under "force majeure" circumstances.

It will be up to legislators to define force majeure circumstances for retailers in the new draft law, though informal state influence is likely to remain powerful.

Putin sprang a surprise visit on Russia's largest grocery chain last week with a visit to a Perekrestok store operated by the X5 group near his government office, where he told company bosses they were charging too much for sausage and meat.

Within a few days, X5 announced a "grand sale" with discounts of 30-80 percent on more than 3,000 items.

SOCIALLY OBJECTIONABLE

The new limits on retailers would focus on the system of discounts and bonuses used by large retailers to obtain low prices from suppliers and boost their margins.

It permits volume discounts but bans other incentives deemed "socially objectionable," such as bonus payments exacted from suppliers for introducing new products and giving them maximum exposure in stores.

It also sets tight payment deadlines based on the sell-by period for different categories of food.

In return they would receive tax write-offs for loss and theft of goods, and the right to veto 'mobile trade' near their stores, a likely reference to ubiquitous vans selling drinks, cigarettes, snacks and fruit on the street.

Russia's government ordered food retailers and suppliers to work out their differences after the financial crisis hit Russia and photographs of empty shop shelves emerged in newspapers as a shortage of working capital left retailers unable to pay bills.

The government, fearing political consequences of shortages and inflation, stepped in quickly with anti-crisis support for Russia's key retailers.

At the same time, it remained mindful of Russia's dependence on food imports and worries about squeezing its existing domestic producers to keep cheap food on the shelves.

In March, the government's anti-monopoly watchdog investigated five top retailers and ruled they were charging suppliers the equivalent of 5-40 percent of their purchase costs in "bonuses" and said the percentage had been rising annually.



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