Translated material
Penny price
The law on trade regulation that has come into force is not supported by enforcement mechanisms
On February 1, the main provisions of one of the most controversial bills of recent years - the law “On the Fundamentals of Regulation of Trade Activities in the Russian Federation” - came into force. It was assumed that the implementation of the law would, if not reduce, then at least significantly limit the rise in food prices. This should have been facilitated by the abolition of bonuses that retail chains demanded from suppliers, the reduction of payment terms for goods supplied for sale, and the elimination of the possibility of monopoly capture by chains of the market and their dictation of product prices to consumers. There are no grounds for optimism yet. For the law to work, a lot of regulations are needed, which are only being prepared and it is not known when they will appear.Deputy Minister of Industry and Trade Stanislav Naumov, speaking yesterday on the Russia 24 channel, reiterated that the law that has entered into force should help reduce food prices and protect producers. To achieve this, the law, in particular, prohibited trade from imposing various additional agreements on product suppliers on the conditions for the appearance of goods in stores. The so-called bonuses are now outlawed - fees for “access to shelves”, imposition of marketing and advertising services, requirements for the exclusivity of the contract, for the provision of information about all agreements with other trading enterprises, as well as fees for changing the assortment of goods, lowering prices and many others. The maximum that chains can now demand from suppliers is a discount for the volume of products accepted for sale, but this is also limited to 10%.
Maximum terms for settlements between stores and partners for goods supplied have been established, beyond which retailers cannot delay payment. Suppliers and networkers are given 180 days to bring into compliance with the new law the terms of contracts for the supply of food products concluded before the date the law comes into force. New agreements must now fully comply with the law “On Trade” that has entered into force.
But so far the networks are in no hurry to give up their profits. At a recent hearing in the State Duma, Viktor Semenov, Chairman of the Council of the Association of Industry Unions of the Agro-Industrial Complex “ASSAGROS”, said that some manufacturers are complaining about the tightening of the terms of supply contracts. “Someone clearly decided to get the shortfall in profit while it was still possible,” lamented Mr. Semyonov. Director of the Lenin State Farm CJSC Pavel Grudinin cited the terms of the agreement with one of the retail chains, which his company received on January 28. It followed that the total interest for a variety of network services almost exceeded the cost of the supplied products.
“A month ago we asked questions about bringing contracts into compliance with the new law. But no changes were made to the agreements with any retail chain,” Sergei Ponomarev, deputy general director for development of the Russian Milk company, confirmed to Vremya Novostey. Therefore, he is confident that the new law will not have any consequences for buyers: “The chains will still take back their margin, which they received before the new law was introduced. It’s just that before this was presented as a retro bonus, but now it will be a regular discount on the price (in up to 10%). Or additional service agreements will be concluded, maybe even with third parties.”
Not everything is in order with the payment terms. Specialized websites are already discussing the danger that retailers will begin to comply with all the legal formalities of drawing up contracts that will be signed not in one day, but in 10-15 days.
Everyone is relying on the Federal Antimonopoly Service (FAS), which now has the right to check supply agreements for compliance with the law. But it is unlikely that the antimonopoly agency will have the strength to massively control millions of contracts. At the end of last week, Timofey Nizhegorodtsev, head of the department for control of the social sphere and trade of the FAS, said that his department was only developing a methodology for conducting inspections for territorial departments. “The FAS Expert Council on Trade Development will discuss this problem on February 17, and will also clarify the provisions of some articles of the law to ensure uniform application of them locally throughout the country,” the official promised at parliamentary hearings in the Duma.
But for these checks to be effective, a mechanism for punishing violators is needed, which, as it turns out, also does not exist. The FAS, according to Mr. Nizhegorodtsev, is only preparing a draft of relevant amendments to the Code of Administrative Offences. It provides for fines for non-disclosure of the terms of the supply agreement and unacceptable remuneration for trade organizations. Officials who discriminate against a retail chain and create anti-competitive working conditions will also be fined and disqualified for three years.
The Law “On Trade” regulates the activities of chains, which include any two or more stores selling food products, operating under a single sign or under common management. Deputies prohibited chains whose product sales reached 25% of food turnover within the borders of administrative entities from not only buying or building new retail facilities, but also renting them. This regional ban applies to all transactions concluded after February 1. Actions that lead to the size of the retail network going beyond the agreed 25% of trade turnover at the level of municipal districts and cities will be outlawed from July 1, 2010. But already now small and medium-sized businesses must own at least 60% of non-stationary retail facilities in the municipality.
The regulations necessary for the law to work are simply not in place yet. The Ministry of Industry and Trade, according to Deputy Minister Stanislav Naumov, is only preparing a methodology for maintaining trade registers necessary for recording retail space and transactions with them. This document will require government approval. There is also no one yet to collect the statistics necessary to monitor compliance with established standards and to subject them to complex mathematical calculations. The Federal Antimonopoly Service has developed and sent for approval to the Ministry of Economic Development a draft methodology for calculating the shares of food chains. However, its application requires sufficiently detailed statistics at the level of municipal districts and cities. Rosstat collects such information only at the regional level. In order for the statistical agency to move lower, significant resources are needed, the allocation of which has not yet been provided for. So, most likely, the FAS will not independently monitor the level of segmentation of food retail, but, as Stanislav Naumov previously assumed, will begin to respond to complaints from competitors of overgrown chains, checking their transactions to increase retail space for compliance with the law.
The law allows the government to set maximum retail prices for certain essential goods if their cost rises by more than 30% within 30 calendar days. A price control mechanism and an algorithm for government actions in case of force majeure have also not yet been developed. But oddly enough, its possible imminent demand even with the record low level of inflation that is observed in Russia now is evidenced by Rosstat data on the increase in prices for fruits and vegetables: from December 28, 2009 to January 25 of this year, prices for white cabbage in The average for Russia increased by 18.5%, for onions - by 16.3%. It is likely that in some regions the increase in prices for fruits and vegetables has gone beyond the 30% established by law. But there is no list of socially significant goods yet either.
The new law has not yet had time to come into effect, and all parties involved in its preparation, as expected, are already talking about the need for amendments. “Today, the risks of non-payments are constantly growing. If amendments limiting the trade markup are not prepared by the summer, the situation threatens to get out of control,” said Sergei, one of the most active lobbyists for the current version of the law, deputy chairman of the Federation Council Committee on Agricultural and Food Policy and the Fisheries Complex, in the Duma last Friday Lisovsky. “It’s time to pay attention to wholesale trade, which is almost all still in the shadows,” says Viktor Semenov, chairman of the board of the Association of Industry Unions of the Agro-Industrial Complex “ASSAGROS”. He is fully supported by the Chairman of the Council of the Russian Consumer Union, Petr Shelishch: “There are more than a million legal entities in wholesale trade, which is several times more than in retail. And a few years ago I was told at the highest levels that wholesale was just cashing in.”