A fascinating question.
This is exceptionally high, only Kenya, Nigeria and Pakistan are comparible – with Nigeria and Pakistan looking equally vulnerable to the ‘new normal’ of low oil prices.
A collapsing currency, shrinking economy, and rampant inflation make a bitter combination for ordinary Russians. What makes it even more unpalatable is what’s happening at the grocery store, where meat, fruit, vegetables, and other staples are increasingly scarce and expensive. Russia’s economic woes are literally hitting its people in the stomach.
This is why Putin is so worried about a colour revolustion, a Moscow Spring. Clearly the tactic of the west over Crimea and the Ukraine has been to topple Putin through a economic cold war using low oil prices and sanctions to cripple the regime.
Historically there have been clear links between high food prices and unrest. This has been studied in some depth by complex systems theorists at the New England Complex Systems Institute (NECSI)
NECSI analysis reveals two main forces driving the global food price upward: ethanol conversion and speculation. This work has direct and immediate policy implications.
Since their research waspublished in 2013 a third reason has arisen, global oil price and asset deflation. It has not yet been updated.
Yaneer Bar-Yam, charted the rise in the FAO food price index—a measure the UN uses to map the cost of food over time—and found that whenever it rose above 210, riots broke out worldwide. It happened in 2008 after the economic collapse, and again in 2011, when a Tunisian street vendor who could no longer feed his family set himself on fire in protest.
Bar-Yam built a model with the data, which then predicted that something like the Arab Spring would ensue just weeks before it did. Four days before Mohammed Bouazizi’s self-immolation helped ignite the revolution that would spread across the region, NECSI submitted a government report that highlighted the risk that rising food prices posed to global stability. Now, the model has once again proven prescient—2013 saw the third-highest food prices on record, and that’s when the seeds for the conflicts across the world were sown.
“I have a long list of the countries that have had major social unrest in the past 18 months consistent with our projections,” Bar-Yam tells me. “The food prices are surely a major contributor—our analysis says that 210 on the FAO index is the boiling point and we have been hovering there for the past 18 months.”
Now of course social unrest has complex causes – think of Egypt for example with its meany years of complex simmering and finely balenced causes of instability, but what this works shows is that high food prices can constitute a tipping point.
“In some of the cases the link is more explicit, in others, given that we are at the boiling point, anything will trigger unrest. At the boiling point, the impact depends on local conditions,” Bar-Yam says. But a high price of food worldwide can effect countries that aren’t feeling the pinch as much. “In addition, there is a contagion effect: given widespread social unrest that is promoted by high food prices, examples from one country drive unrest in others.”
Historically the linkages between high food prices and revolutions is striking
According to Sylvia Neely’s A Concise History of the French Revolution, the average 18th-century worker spent half his daily wage on bread. But when the grain crops failed two years in a row, in 1788 and 1789, the price of bread shot up to 88 percent of his wages. Many blamed the ruling class for the resulting famine and economic upheaval. On top of that, peasants resented the gabelle, a tax on salt that was particularly unfairly applied to the poor.
Obviously, the causes of the revolution were far more complicated than the price of bread or unfair taxes on salt (just as the American Revolution was about more than tea tariffs), but both contributed to the rising anger toward the monarchy.
Lester Brown President of the Earth Policy Institute
If I were to pick a single indicator—economic, political, social—that I think will tell us more than any other, it would be the price of grain,”
Two events have renewed interest among scholars in the relationship between food prices and political instability. The first was the 2007–08 food crisis, which triggered food riots in countries from Haiti to Bangladesh to Mozambique.
The second was the Arab Spring, the first signs of which were riots in response to high food prices in Algeria and Tunisia. The revolutions that swept the Middle East that year were, of course, primarily the result of a population frustrated by decades of dictatorship and corruption, but according to Hendrix, Egypt’s revolution, in particular, is impossible to fully understand without taking into account the role of food….
The Arab Spring may become the textbook example of the geopolitics of food prices—the food riots and subsequent revolutions transfixed the world. But shifts in food price may be responsible for an even more profound reordering of global power. Food may explain why everything changed during the 1980s.
After a price shock in the late 1970s, food prices underwent a slump during the early and mid-1980s. A confluence of factors included slowing economic growth; the spread of the “green revolution,” which improved the efficiency of agriculture in developing countries; and the falling price of oil.
This slump played a role in many of the larger geopolitical trends of the era, according to Argentinian economist Eugenio Diaz-Bonilla. The Soviet Union, which was a net exporter of commodities, was hit hard economically, and by the end of the decade was near collapse. Growth was sluggish throughout the decade in Latin America, where most economies are based on agriculture. Dictatorships were overthrown in Ecuador, Argentina, Brazil, Uruguay, and Chile. African countries entered a period of economic stagnation and civil strife that the continent only recently started to recover from. The emerging tigers of East Asia, meanwhile, such as China and South Korea, benefited from low prices on the food they import.
Sadly the FAO do not publish a country specific real food price index, an interesting task for any PHD student looking for a project. Russia is entering the zone of around 50% of disposable income where unrest becomes near certain, but is well below the range of 70-80% where hostirically revolution is near certain.
Wikipedia on the event leading up to the October Revolution of 1917
Food scarcity had become a considerable problem in Russia, but the cause of this did not lie in any failure of the harvests, which had not been significantly altered during war-time. The indirect reason was that the government, in order to finance the war, had been printing off millions of ruble notes, and by 1917 inflation had made prices increase up to four times what they had been in 1914. The peasantry were consequently faced with the higher cost of purchases, but made no corresponding gain in the sale of their own produce, since this was largely taken by the middlemen on whom they depended. As a result they tended to hoard their grain and to revert to subsistence farming. Thus the cities were constantly short of food. At the same time rising prices led to demands for higher wages in the factories
The real danger the Russian State faces is high inflation caused by the collapse in the ruble and the need to monetise the state in the face of the collapse in the oil price.
Yesterday Russia implemented a Venuzialian style solution, it of course has already restricted grain exports, a tactic likely to see selves empty within months. Putin stupidly has already banned imports from snationing countries.
Russia’s top supermarket chains are to freeze prices on basic foodstuffs for two months, soaking up the costs as food is expected to eat up half of Russians’ incomes this year.
The retailers plan to freeze prices on 20 socially important items in an attempt to stabilize the food market, the Association of Retail Stores (AKORT) said on its website last week.
“The supermarket chains are certain that their actions will help stabilize the situation on the food market, in the interests of the population”, the Association said.
Retailers want to show their socially responsibility as food prices rise following the ruble’s plunge of over 40 percent to the dollar and the food import bans.“Freezing prices may lead to an increase in prices of other goods, but I hope it will be not be so harsh and the situation will be stable”, he added, saying there is work on amendments to the trade law, which are aimed at transparency in the relationship between retailers and producers.
This tactic of course has been ordered by the Putin regime, unlike food subsidies in the Arab world for example it will be private sector funded, through cross subsidy and eating into margins. This will only be sustainable as long as the Russian retail sector can make a profit.
There are two things to watch. First the headline rate of inflation, if it goes well above the 10% mark then things will look grim for Putin. Second is surprisingly not the health of the Russian retail sector.
Fitch Ratings says Russian food retail chains continue to demonstrate healthy like-for like (LFL) sales growth, despite the food import ban imposed in August against the EU, US and certain other countries, based on the 3Q14 operating results of Russia’s five largest public food retailers. Most of the Russian food retailers analysed by Fitch have managed to adapt to the food import sanction by substituting the imported categories with food from other countries, keeping the mix of food products on the shelves little changed. Based on 9M14 financial results by Russia’s three large public food retailers (Magnit, X5 Retail Group, O’Key Group), operating margins are unaffected for now as retailers have been able to pass on the increased costs of some products to customers without altering the product mix materially.
This is the important point. The squeeze on food prices is nitigated because food retailers have been instructed to raise other prices to cross subsidize. Teh metric to watch then in Russia is not food prices but real wages and disposible incomes post inflation.
Russian retail sales fell last month for the first time in more than five years as real wages plunged the most since 1999, underscoring the damage inflicted on the economy by a tailspin in oil prices and the ruble’s collapse.
Sales declined 4.4 percent from a year earlier after expanding 5.3 percent in December, the Federal Statistics Service in Moscow said Wednesday in a statement. The median estimate of 14 economists surveyed by Bloomberg was for a 1.9 percent decline. Wages adjusted for inflation shrank 8 percent.
The drop in consumption, which accounts for about half the economy, is the latest blow for President Vladimir Putin as Russia lurches into recession following the oil rout and U.S. and European sanctions over Ukraine. The fastest inflation rate in almost seven years and the ruble’s 46 percent slump in 2014 are eating into workers’ paychecks, putting Russia on track for the biggest drop in consumption in more than two decades.“We’re going to see the first fruits of the upcoming recession through deep negative numbers of private consumption growth,” Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki, said before the release. “We expect macroeconomic indicators to hit the bottom during the second quarter.”
So things are already as bad as Russia’s near collapse in 1999.
Even with Puitins popularity if things continue deteriorating at the current rate we could see crisis point hit within 2 years. Against that background Putin might see provoking a war most Nato members are desperate not to fight as a necessary tactic for survival.