Fresh produce to disappear from Moscow supermarket shelves on currency woes

By bne IntelliNews December 16, 2014

bne IntelliNews -

 

Fresh produce that is usually delivered daily to Moscow's leading supermarket shelves could start disappearing from December 17 because of disputes over who should bear the cost of the depreciating ruble. 

After the ruble went into free fall on December 16, smashing through the RUB79 level to the euro, several big distribution companies called the drivers of their delivery trucks on their way to Moscow's leading supermarkets and told them to return to the depot, according to one industry insider.

"The problem is that distributors have to sign contracts with the supermarkets that say prices will not be adjusted if the exchange rate moves. The ruble has fallen so much in the last 24 hours the distributors would lose money and would rather face legal action for non-fulfilment than deliver the goods as they will lose less money," says a bne industry source, who didn’t want to be named.

The products that will be affected first are fresh produce like bread, milk and eggs that are usually delivered to supermarkets every day.

Calls to the leading distribution companies went unanswered and the leading supermarkets chains' press departments also failed to respond to enquires.

According to bne's source several leading distributors that account for the lion's share of delivering fresh produce to the top supermarket chains held an informal meeting and decided to act together.

"It’s a function of the inflexibility of Russian business: the supermarket managers are not authorised to renegotiate prices and so refuse to discuss the issue. They need to go upstairs but that takes time. If all the distributors stop delivering at the same time, the supermarket chain will be forced to renegotiate terms as it can't sue everyone," says bne's source, who has been working in fast moving consumer goods in Russia for over 20 years.

Trucks left depots as usual in the morning of December 16, the morning after the Central Bank of Russia (CBR) hiked interest rates by 6.5% to stop the meltdown of the currency. The ruble exchange rate against the dollar bounced as it came out of the gate at the start of trading, but within an hour began depreciating against both the dollar and the euro. The euro is the more important currency for supermarkets as about 40% of Russia's processed food comes from Europe, and still does, despite the Kremlin's ban on EU agricultural goods imposed earlier this year.

A similar thing happened in 1998 when the payment system collapsed following a 75% devaluation of the ruble in the space of a few weeks. However, that time no-one could make payments even if they wanted to. This time round the argument is simply over price and if the owners of supermarkets agree, new deals could be put in place relatively easily and deliveries restarted. The impact would then be seen not in empty shelves, but a dramatic increase in prices that take into account the devaluation.

 

 

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