Potatoes and More: Unraveling Russia's Economic Crisis in 2023
Russia's financial difficulties are intensifying
Jabber! Let's dive into the whoa-inducing economic turmoil faced by Russia in 2023. Potatoes and onions? You betcha. But there's a whole lot more you need to know.
In Mother Russia, the nation with the potential for the largest agricultural acreage, the spud and the onion are scarce. Even the big kahuna himself, President Vladimir Putin, has spotlighted the shortfall. "Turns out we're short on potatoes," Putin groused recently. He's also pointed out shortages of sugar beets and certain veggies.
Pricewise, potatoes in stores have skyrocketed. According to official figures, they've jumped almost threefold in the past year, with onions doubling in price. Cabbage now gobbles up over 50% more of the average Joe's dough compared to last year, according to Rosstat. It feels like more, mate.
Politicking with Putin and Merz
A kilo of potatoes cost more than one euro in June. With typical pre-tax income of around 1,000 euros and around 200 euros in pensions, this ain't chump change. Rising food prices are one of the primary drivers behind Russia's 9.6% inflation rate, as reported by the Ministry of Economy.
The central bank is trying to keep inflation in check with a latter-day interest rate of 20%. The logic behind this high-octane policy is that steep interests make borrowing tougher, ratcheting down the money supply. A smaller money supply means less demand and falling inflation. However, Russia's sleuthing the additional complications.
Gov't Quackery: Acknowledging Woes
Economic Minister Maxim Reshetnikov raised concerns for the domestic economy on Putin's stage, the St. Petersburg International Economic Forum (SPIEF). He warned, "According to the numbers, we're seeing a slump, but according to the current feelings of entrepreneurs, we're already at the brink of transitioning into a recession." He snarked that the current interest rate level is demotivating entrepreneurs to invest. He foresees investment in Q3 and Q4 might be below last year's level.
Central Bank Chair Elvira Nabiullina defended against accusations of misguided economic policy but also predicted difficulties. She admitted that many of Russia's resources are now exhausted, and they need to think about a new growth model.
Heavy Defense, Light Production
But there's a catch. Russia's economy managed to tread water surprisingly well despite Putin's invasion of Ukraine and Western sanctions, mainly due to a heavy shift in the economy towards war production. Sergei Chemesov, one of Putin's allies who heads the defense industry, bragged about a deluxe increase in ammunition and weapons production by "multiple" compared to 2021.
Critics contend that the growth in Gross Domestic Product (GDP) in Russia doesn't demonstrate the economy's true potential to create new goods for citizens or boost their standard of living. Instead, it's reflecting the defense industry, which is ever-increasingly churning out drones, rockets, and tanks.
Troubles Beyond Defense
Meanwhile, civilian sectors are limping along with high costs, labor shortages, and tech backlogs, worsened exponentially by sanctions. For example, the housing and real estate sector is close to bust, with car manufacturing also taking a hit since Western producers and suppliers have turned their backs on Russia. While China is selling more cars in Russia, they're not locally produced.
Avtovaz, part of the Chemesov empire that manufactures the iconic Lada, hasn't stepped up to fill the gap left by Western automakers. At the St. Petersburg Economic Forum, the company rolled out a new model called the Lada Azimut, slated to enter mass production next year. There's a surplus of previous models due to slack demand. New auto sales in Russia have plummeted again after a brief surge in 2024. Year-to-date sales are roughly 450,000 vehicles, a drop of 26%.
Harvest Havoc
This impacts the agriculture sector. Despite Putin's announcement of a record grain harvest of 157 million tons in 2022, yields have declined in the past two years. While the Kremlin leader has ordered an increase in grain production to 170 million tons and exports to 80 million tons by 2030, Deputy Prime Minister Dmitry Patrushev warned that the current trend is moving in the opposite direction and requires prompt changes.
The agricultural machinery manufacturer Rostselmasch is in dire straits. The maker of combine harvesters and tractors has recently slashed more than 15,000 employees, causing stress rather than relaxation since neither rehiring nor production is guaranteed. Short-time work was introduced in the factory in March, and 2,000 workers were let go in April.
Serving the Potato Overlord
Belarusian tater tyrant Alexander Lukashenko recently advised his subjects to consume potatoes only one or two times a week, or else they'll put on too much weight. With a recession looming, Putin might want to heed Lukashenko's wisdom.
- War on Ukraine
- Military Spending
- Economic Sanctions
- Russia
- Defense Industry
- Civilian Sectors
- Labor Shortages
- Inflation
- Consumer Prices
- Agriculture
- The economic crisis in Russia, particularly the high inflation rate, is partly due to the Government's employment policies and community policy, which have led to a lack of available labor and resources in the agriculture sector, causing the prices of essential goods like potatoes, onions, and cabbage to skyrocket.
- Driven by the heavily militarized economy, the defense industry in Russia has seen a significant increase in ammunition and weapons production, but this growth has not translated into increased production in civilian sectors such as housing, real estate, and automobile manufacturing, which are struggling with high costs, labor shortages, and tech backlogs due to sanctions.
