OREANDA-NEWS. August 16, 2010.   “It is necessary for questionable distributers to realise that they’d better act within the law, otherwise their losses from penalties might exceed the gains they are trying to obtain by using these speculative methods,” said the Prime Minister during his meeting with the head of the Federal Antimonopoly Service.

Transcript of the beginning of the meeting:

Vladimir Putin: Good afternoon, Mr Artemyev. I have asked you to exercise personal control and monitor the market situation with respect to key product groups: drugs, oil and oil products, and foodstuffs. Today I am interested in the two of them: oil and oil products and foodstuffs.

Igor Artemyev: Mr Putin, I would like to start with the food products. Per your instruction, each week we have monitored the major food product types, drugs and oil, for several years now. Starting from July 25-30 we witnessed some price growth on various products. So on July 30 I issued an order for our local agencies to start monitoring this situation and to take prompt measures. We understand quite well that even if the most pessimistic grain harvest forecasts come true, we have enough grain in stock to satisfy our needs.

Vladimir Putin: our own needs...

Igor Artemyev: Domestic needs, yes. We have no doubts about this, and so the growth of prices can be called speculative. This is either an attempt to hold grain, as is done by some companies in the south of Russia where there are no wildfires, and sell it in September and October when prices are expected to go up in Europe, if Russia lifts a ban on grain export (and I have grave doubts about that), or some other strategy. But this is really speculation.

So we would like to draw your attention to the fact that the production and distribution chains have used dozens and even hundreds of intermediaries in many regions for several years. These middlemen are used by managers themselves, above all, to avoid taxes. This is done, as a rule, through the use of so-called one-day firms, and with the purpose to increase grain price following each resale. And the problem is that many people are engaged in this resale process. The only way to deal with them is to hold regular inspections, that both we and the tax service are engaged in. But there is also another option. We could establish a grain and flour exchange in Russia, as in pre-revolutionary Russia, because if I can buy a commodity at an exchange, I do not need intermediaries.

Vladimir Putin: The Ministry of Economic Development, your service and the tax service should work insistently toward establishing such an exchange.

Igor Artemyev: Thank you for this decision, Mr Putin; we have been waiting to hear this for a long time. We should deal with all this as fast as possible. Then the middleman with his own transport and logistics could work as a legitimate distributor. Today one trader resells a product to the second, the second resells it to a third, fourth, fifth and so one - in a long chain.

Following our inspections several cases have been opened based on our findings. Just today cases were initiated in the Republic of Tatarstan and the Kursk and Magadan Regions to investigate bread price increases. These increases are due to our domestic producer's agitation connected with the wildfires in Russia. In terms of the number of violations, there are many of them because whole distribution chains are involved.

What measures do we propose? First, the creation of a grain exchange, as a long-term objective ...

Vladimir Putin: One second! Sorry for interrupting you. First of all, I want to clear up the situation: You believe that there was a certain price increase, and so far no decline in pricing is evident?

Igor Artemyev: We have not seen any decline yet. Considering the fact that the ban on exports must have led to the stabilisation of prices in Russia, we expect it as an economic tendency. But for the time being we see no decline in prices. However, we get the data with a five-day delay. We will report to you as soon as we see the change. There is still hope.

Vladimir Putin: I see. Now what measures do you propose?

Igor Artemyev: Now about our plans. Of course, they will be directed against intermediaries, against unwarranted price increases by monopolies (they exist everywhere): dairy factories, grain elevators and bakeries which dominate the market. So we are now taking all these companies under control practically with online monitoring to watch price growth. The objective is simple: to keep down this unwarranted surge.

Vladimir Putin: What measures can you use against those who unreasonably drive up prices?

Igor Artemyev: Thank God, fines are now sizable. They range from 1% to 15% of a company's annual turnover. Properly speaking, we intend to impose such fines. Legislation not only says we may levy them, we are obliged to levy them if we find a monopoly charging high prices. If to date we are speaking only of a dozen opened cases in the areas mentioned, the actual number of such cases will increase in the future.

Vladimir Putin: It is necessary for questionable distributers to realise that they'd better act within the law, otherwise their losses from penalties might exceed the gains they are trying to obtain by using these speculative methods.

Igor Artemyev: No doubt, Mr Putin. If there is collusion between separate companies, they will be subject to criminal investigation, and in such instances we cooperate with the Interior Ministry and the Investigative Committee of the Prosecutor-General's Office. Unfortunately, we observed such cases in the food sector earlier, before the latest peak, so the industry needs to know that this is serious.

Vladimir Putin: I do hope that your service will act consistently and protect the consumers' interests.

Igor Artemyev: We have offices in every region and each one works with this in mind.

Vladimir Putin: We have to protect food manufacturers from oil producers, and protect ourselves from food manufacturers.

Igor Artemyev: Regrettably. The government had a special programme drawn up for farm producers to purchase oil products at 10% discount. This programme works today, Mr Putin. At the same time, world prices have stabilized lately, in turn stabilizing the prices on the domestic market. Nevertheless, we believe that prices should be calculated according to prescribed formulas - this is our position. We would like very much to see this position either disproved by our economy-related ministers in the government or supported. We believe domestic prices are overvalued by 15% to 20%. And this has an effect on absolutely everything - air transportation, agriculture, construction, etc. Absolutely everything. This practice has taken years to establish, Mr Putin. But if we limit ourselves to what is happening this year, then prices are reasonably stable. Currently, we have around 50 trials underway against oil companies. Naturally, their reaction is negative, but I think the trials are an important factor in keeping prices down.

Vladimir Putin: Right. Now a few words on the third key group of products - pharmaceuticals.

Igor Artemyev: Pharmaceuticals are showing one disquieting trend. I believe we should look carefully at the latest government resolution that made it obligatory for producers to register drugs with Roszdravnadzor, the public health watchdog. The rules are as follows: distributors get a trade markup depending on the price of a registered medicine. When we did some monitoring, we saw that distributors and the manufacturers themselves are interested in registering the expensive price of a preparation: the higher it is, the more dealers, shop assistants, etc, receive down the chain. The feedback is most undesirable. The higher the price at which you register a drug - and prices are often pulled out of thin air - the greater your chance to sell it through the network because everyone involved is interested. What's more, less expensive alternatives may be priced out of the market. We are now checking - in cooperation with the government and oversight agencies - to see if low-priced pharmaceuticals are really priced out because of this distortion and why companies register the same medicaments with a price difference of sometimes 12-20 times.

Vladimir Putin: Mr Artemyev, what you have just said is very important. You must follow through with this analysis without delay and make proposals for improvement from your findings.