During a televised session with ordinary Russians last month, a woman pressed President Vladimir Putin on high food prices, write Polina Devitt and Darya Korsunskaya.

Valentina Sleptsova challenged the president on why bananas from Ecuador are now cheaper in Russia than domestically-produced carrots and asked how her mother can survive on a “subsistence wage” with the cost of staples like potatoes so high, according to a recording of the annual event.

Putin acknowledged high food costs were a problem, including with “the so-called borsch basket” of basic vegetables, blaming global price increases and domestic shortages. But he said the Russian government had taken steps to address the issue and that other measures were being discussed, without elaborating.

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Sleptsova represents a problem for Putin, who relies on broad public consent. The steep increases in consumer prices are unsettling some voters, particularly older Russians on small pensions who do not want to see a return to the 1990s when sky-rocketing inflation led to food shortages.

That has prompted Putin to push the government to take steps to tackle inflation. The government’s steps have included a tax on wheat exports, which was introduced last month on a permanent basis, and capping the retail price on other basic foodstuffs.

But in doing so, the president faces a tough choice: in trying to head off discontent among voters at rising prices he risks hurting Russia’s agricultural sector, with the country’s farmers complaining the new taxes are discouraging them from making long-term investments.

The moves by Russia, the world’s top wheat exporter, also have fed inflation in other countries by driving up the cost of grain. An increase in the export tax unveiled in mid-January, for example, sent global prices to their highest levels in seven years.

Putin faces no immediate political threat ahead of parliamentary elections in September after Russian authorities carried out a sweeping crackdown on opponents linked to jailed Kremlin critic Alexei Navalny. Navalny’s allies have been prevented from running in the elections and are trying to persuade people to vote tactically for anyone apart from the ruling pro-Putin party even though the other main parties in contention all support the Kremlin on most major policy issues.

However, food prices are politically sensitive and containing rises to keep people broadly satisfied is part of Putin’s longstanding core strategy.

"If the price of cars goes up only a small number of people notice," said a Russian official familiar with the government's food inflation policies. "But when you buy food that you buy every day, it makes you feel like overall inflation is going up dramatically, even if it is not.”

In response to Reuters’ questions, Kremlin spokesman Dmitry Peskov said the president was opposed to situations where the price of domestically produced products “are rising unreasonably.”

Peskov said that had nothing to do with the elections or mood of voters, adding it had been a constant priority for the president even prior to the run up to elections. He added that it was up to the government to choose which methods to combat inflation and that it was responding both to seasonal price fluctuations and global market conditions, which have been impacted by the coronavirus pandemic.

Russia’s economy ministry said that the measures imposed since the start of 2021 have helped to stabilise food prices. Sugar prices are up 3% so far this year after 65% growth in 2020 and bread prices are up 3% after 7.8% growth in 2020, it said.

Sleptsova, who state television identified as from the city of Lipetsk in central Russia, didn’t respond to a request for comment.

Consumer inflation in Russia has been rising since early 2020, reflecting a global trend during the COVID-19 pandemic.

The Russian government responded in December after Putin publicly criticised it for being slow to react. It set a temporary tax on wheat exports from mid-February, before imposing it permanently from June 2. It also added temporary retail price caps on sugar and sunflower oil. The caps on sugar expired on June 1, the ones for sunflower oil are in place until Oct. 1.

But consumer inflation - which includes food as well as other goods and services - has continued to rise in Russia, up 6.5% in June from a year earlier -- it’s fastest rate in five years. The same month, food prices rose 7.9% from the previous year.

Some Russians see the government’s efforts as insufficient. With real wages falling as well as high inflation, the ratings of the ruling United Russia party are languishing at a multi-year low. Read more.

Alla Atakyan, a 57-year old pensioner from the Black Sea resort city of Sochi, told Reuters she didn’t think the measures had been sufficient and it was negatively impacting her view of the government. The price of carrots "was 40 roubles($0.5375), then 80 and then 100. How come?" the former teacher asked.

Moscow pensioner Galina, who asked she only be identified by her first name, also complained about steep price rises, including of bread. “The miserable help that people have been given is worth almost nothing," the 72-year old said.

When asked by Reuters whether its measures were sufficient, the economy ministry said the government was trying to minimize the administrative measures imposed because too much interference in market mechanisms in general creates risks to business development and may cause product shortages.

Peskov said that "the Kremlin considers government action to curb price rises for a range of agricultural products and foodstuffs to be very effective."

FARMING FRICTION

Some Russian farmers say they understand the authorities’ motivation but see the tax as bad news because they believe Russian traders will pay them less for the wheat to compensate for the increased export costs.

An executive at a large farming business in southern Russia said the tax would hurt profitability and mean less money for investment in farming. "It makes sense to reduce production so as not to generate losses and to raise market prices," he said.

Any impact on investment in farming equipment and other materials likely will not become clear until later in the year when the autumn sowing season begins.

The Russian government has invested billions of dollars in the agriculture sector in recent years. That has boosted production, helped Russia import less food, and created jobs.

If farm investment is scaled back, the agricultural revolution that transformed Russia from a net importer of wheat in the late 20th century, may start to draw to an end, farmers and analysts said.

"With the tax we are actually talking about the slow decay of our growth rate, rather than overnight revolutionary damage," said Dmitry Rylko at the Moscow-based IKAR agriculture consultancy. "It will be a long process, it could take three to five years."

Some may see the impact sooner. The farming business executive plus two other farmers told Reuters they planned to reduce their wheat sowing areas in autumn 2021 and in spring 2022.

Russia’s agriculture ministry told Reuters that the sector remains highly profitable and that the transfer of proceeds from the new export tax to farmers would support them and their investment, therefore preventing a decline in production.

The Russian official familiar with the government's food inflation policies said the tax will only deprive farmers of what he called an excessive margin.

"We are in favour of our producers making money on exports. But not to the detriment of their main buyers who live in Russia," Prime Minister Mikhail Mishustin told the lower house of parliament in May.

The government measures could also make Russian wheat less competitive, according to traders. They say that is because the tax, which has been changing regularly in recent weeks, makes it harder for them to secure a profitable forward sale where shipments may not take place for several weeks.

That could prompt overseas buyers to look elsewhere, to countries such as Ukraine and India, a trader in Bangladesh told Reuters. Russia has in recent years often been the cheapest supplier for major wheat buyers such as Egypt and Bangladesh.

Sales of Russian wheat to Egypt have been low since Moscow imposed the permanent tax in early June. Egypt purchased 60,000 tonnes of Russian wheat in June. It had bought 120,000 tonnes in February and 290,000 in April.

Prices for Russian grain are still competitive but the country's taxes means the Russian market is less predictable in terms of supply and pricing and may lead to it losing some of its share in export markets generally, said a senior government official in Egypt, the world's top wheat buyer.

($1 = 74.4234 roubles)

The European Commission has put forward a long-term vision for the EU's rural areas, identifying the challenges and concerns that they are facing, as well as highlighting some of the most promising opportunities that are available to these regions. Based on foresight and wide consultations with citizens and other actors in rural areas, today's Vision proposes a Rural Pact and a Rural Action Plan, which aim to make our rural areas stronger, connected, resilient and prosperous.

To successfully respond to the megatrends and challenges posed by globalisation, urbanisation, ageing and to reap the benefits of the green and digital transitions, place-sensitive policies and measures are needed that take into the account the diversity of EU's territories, their specific needs and relative strengths.

In rural areas across the EU the population is on average older than in urban areas, and will slowly start to shrink in the coming decade. When coupled with a lack of connectivity, underdeveloped infrastructure, and absence of diverse employment opportunities and limited access to services, this makes rural areas less attractive to live and work in. At the same time, rural areas are also active players in the EU's green and digital transitions. Reaching the targets of the EU's digital ambitions for 2030 can provide more opportunities for the sustainable development of rural areas beyond agriculture, farming and forestry, developing new perspectives for the growth of manufacturing and especially services and contributing to improved geographical distribution of services and industries.

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This long-term Vision for the EU's rural areas aims to address those challenges and concerns, by building on the emerging opportunities of the EU's green and digital transitions and on the lessons learnt from the COVID 19 pandemic, and by identifying means to improve rural quality of life, achieve balanced territorial development and stimulate economic growth.

Rural Pact

A new Rural Pact will engage actors at EU, national, regional and local level, to support the shared goals of the Vision, foster economic, social and territorial cohesion and respond to the common aspirations of rural communities. The Commission will facilitate this framework through existing networks, and encourage the exchange of ideas and best practices at all levels.

EU Rural Action Plan

Today, the Commission has also put forward an Action Plan to prompt sustainable, cohesive and integrated rural development. Several EU policies already provide support to rural areas, contributing to their balanced, fair, green and innovative development. Among those, the Common Agricultural Policy (CAP) and the Cohesion Policy will be fundamental in supporting and implementing this Action Plan, while being accompanied by a number of other EU policy areas that together will turn this Vision into a reality.

The Vision and Action Plan identify four areas of action, supported by flagship initiatives, to enable:

• Stronger: focus on empowering rural communities, improving access to services and facilitating social innovation;
• Connected: to improve connectivity both in terms of transport and digital access;
• Resilient: preserving natural resources and greening farming activities to counter climate change while also ensuring social resilience through offering access to training courses and diverse quality job opportunities;
• Prosperous: to diversify economic activities and improve the value added of farming and agri-food activities and agri-tourism.

The Commission will support and monitor the implementation of the EU Rural Action Plan and update it on a regular basis on a regular basis to ensure that it remains relevant. It will also continue to liaise with Member States and rural actors to maintain a dialogue on rural issues. Furthermore, “rural proofing” will be put in place whereby EU policies are reviewed through a rural lens. The aim is to better identify and take into consideration the potential impact and implication of a Commission policy initiative on rural jobs, growth and sustainable development.

Finally, a rural observatory will be set up within the Commission to further improve data collection and analysis on rural areas. This will provide evidence to inform policy-making in relation to rural development and support the implementation of the Rural Action Plan.

Next steps

Today's announcement of the Long-Term Vision for Rural Areas marks the first step towards stronger, better connected, resilient and prosperous rural areas by 2040. The Rural Pact and EU Rural Action Plan will be the key components to achieve these goals.

By the end of 2021, the Commission will link up with the Committee of the Regions to examine the path towards the goals of the Vision. By mid-2023, the Commission will take stock of what actions financed by the EU and Member States have been carried out and programmed for rural areas. A public report, that will be published in early 2024, will identify areas where enhanced support and finances are needed, as well as the way forward, based on the EU Rural Action Plan. The discussions around the report will feed into the reflection on the preparation of the proposals for the 2028-2034 programming period.

Background

The need for designing a long term vision for rural areas was underlined in President von der Leyen's political guidelines and in the mission letters to Vice President Šuica, Commissioner Wojciechowski and Commissioner Ferreira. 

Agriculture Commissioner Janusz Wojciechowski said: “Rural areas are crucial to the EU today, producing our food, safeguarding our heritage and protecting our landscapes. They have a key role to play in the green and digital transition. However, we have to provide the right tools for these rural communities to take full advantage of the opportunities ahead and tackle the challenges they are currently facing. The Long-Term Vision for Rural Areas is a first step towards transforming our rural areas. The new CAP will contribute to the Vision by fostering a smart, resilient and diversified agricultural sector, bolstering environmental care and climate action and strengthening the socio-economic fabric of rural areas. We will make sure that the EU Rural Action Plan allows for a sustainable development of our rural areas.”

Article 174 TFUE calls for the EU to pay particular attention to rural areas, among others, when promoting its overall harmonious development, strengthening its economic, social and territorial cohesion and reducing disparities between the various regions.

A Eurobarometer survey was carried out in April 2021 assessing the priorities of the Long-Term Vision for Rural Areas. The survey found that 79% of EU citizens supported  the EU should give consideration to rural areas in public spending decisions; 65% of all EU citizens thought that the local area or province should be able to decide how EU rural investment is spent; and 44% mentioned transport infrastructure and connections as a key need of rural areas.

The Commission ran a public consultation on the Long-Term Vision for Rural Areas from 7 September to 30 November 2020. Over 50% of respondents stated that infrastructure is the most pressing need for rural areas. 43 % of respondents also cited access to basic services and amenities, such as water and electricity as well as banks and post offices, as an urgent need Over the next 20 years, respondents believe that the attractiveness of rural areas will largely depend on the availability of digital connectivity (93%), of basic services and e-services (94%) and on improving the climate and environmental performance of farming (92%).

Democracy and Demography Vice President Dubravka Šuica said: “Rural areas are home to almost 30% of the EU population and it is our ambition to significantly improve their quality of life. We have listened to their concerns and, together with them, built this vision based on the new opportunities created by the EU's green and digital transitions and on the lessons learnt from the COVID 19 pandemic. With this Communication, we want to create a new momentum for rural areas, as attractive, vibrant and dynamic places, while of course protecting their essential character. We want to give rural areas and communities a stronger voice in building the future of Europe.”

Cohesion and Reforms Commissioner Elisa Ferreira (pictured) said: “Although we all face the same challenges, our territories have different means, strengths and capacities to cope with them. Our policies have to be sensitive to the diverse features of our regions. The democratic and cohesive Union we want has to be built closer to our citizens and territories, involving different governance levels. The Long Term Vision for Rural Areas calls for solutions designed for their specific needs and assets, with the involvement of regional and local authorities and local communities. Rural areas have to be able to deliver basic services for their population and build on their strengths to become anchors for economic development. All these objectives are at the very core of the new Cohesion Policy for 2021-2027.”

For More Information

A long-term Vision for the EU's Rural Areas - Towards stronger, connected, resilient and prosperous rural areas by 2040

Factsheet on a long-term vision for rural areas

Questions and Answers on a long-term vision for rural areas

Long-term vision for rural areas

EU agricultural funding destined for climate action has not contributed to reducing greenhouse gas emissions from farming, according to a special report from the European Court of Auditors (ECA). Although over a quarter of all 2014-2020 EU agricultural spending – more than €100 billion – was earmarked for climate change, greenhouse gas emissions from agriculture have not decreased since 2010. This is because most measures supported by the Common Agricultural Policy (CAP) have a low climate-mitigation potential, and the CAP does not incentivize the use of effective climate-friendly practices.

“The EU’s role in mitigating climate change in the agricultural sector is crucial, because the EU sets environmental standards and co-finances most of member states’ agricultural spending,” said Viorel Ștefan, the member of the European Court of Auditors responsible for the report. “We expect our findings to be useful in the context of the EU’s objective of becoming climate-neutral by 2050. The new Common Agricultural Policy should have a greater focus on reducing agricultural emissions, and be more accountable and transparent about its contribution to climate mitigation.”

The auditors examined whether the 2014-2020 CAP supported climate mitigation practices with the potential to reduce greenhouse gas emissions from three key sources: livestock, chemical fertilisers and manure, and land use (cropland and grassland). They also analysed whether the CAP incentivised the uptake of effective mitigation practices better in the 2014-2020 period than it did in the 2007-2013 period.

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Livestock emissions represent around half of emissions from agriculture; they have not decreased since 2010. These emissions are directly linked to the size of the livestock herd, and cattle cause two thirds of them. The share of emissions attributable to livestock rises further if the emissions from the production of animal feed (including imports) is taken into account. However, the CAP does not seek to limit livestock numbers; nor does it provide incentives to reduce them. CAP market measures include the promotion of animal products, consumption of which has not decreased since 2014; this contributes to maintaining greenhouse gas emissions rather than reducing them.

Emissions from chemical fertilisers and manure, which account for almost a third of agricultural emissions, increased between 2010 and 2018. The CAP has supported practices that may reduce the use of fertilisers, such as organic farming and cultivating grain legumes. However, these practices have an unclear impact on greenhouse gas emissions, according to the auditors. Instead, practices that are demonstrably more effective, such as precision farming methods that match fertiliser applications to crop needs, received little funding.

The CAP supports climate-unfriendly practices, for example by paying farmers who cultivate drained peatlands, which represent less than 2% of EU farmland but which emit 20% of EU agricultural greenhouse gases. Rural development funds could have been used for the restoration of these peatlands, but this was rarely done. Support under the CAP for carbon sequestration measures such as afforestation, agroforestry and the conversion of arable land to grassland has not increased compared to the 2007-2013 period. EU law does not currently apply a polluter-pays principle to greenhouse gas emissions from agriculture.

Finally, the auditors note that cross-compliance rules and rural development measures changed little compared to the previous period, despite the EU’s increased climate ambition. Although the greening scheme was supposed to enhance the environmental performance of the CAP, it did not incentivise farmers to adopt effective climate-friendly measures, and its impact on climate has been only marginal.

Background information

Food production is responsible for 26 % of global greenhouse gas emissions, and farming – in particular the livestock sector – is responsible for most of these emissions.

The EU’s 2021-2027 Common Agricultural Policy, which will involve around €387bn in funding, is currently under negotiation at EU level. Once the new rules are agreed, member states will implement them through 'CAP Strategic Plans' designed at national level and monitored by the European Commission. Under the current rules, each member state decides whether or not its farming sector will contribute to reducing agricultural emissions.

Special report 16/2021: “Common Agricultural Policy and climate – Half of EU climate spending but farm emissions are not decreasing” is available on the ECA website