Something must give. I have lost count of the number of firms announcing expansion of dairy-related products in Russia this year. Yet no one is dealing with the underlying demand issue. Cow population declines from Itar Tass.
Companies in low margin commodity markets, such as raw milk, are not managed well enough to regularly make money. There is so much easy money around at the moment, especially if you can sit on the coat tails of the Chinovniki; why work hard for it instead.
These imbalances in the economy are not factored in to inflation forecasts. A combination of increasing protectionism (import tariffs etc), surging consumer demand, the need to import raw materials (dry milk, meat etc) and the extreme rapaciousness of Customs will keep inflation above forecasts throughout 2006. The good news is that consumers are reaching deeper in to their pockets and tax-advisory businesses are making a mint as companies find ever cleverer ways of circumventing the rent seekers.
Technorati Tags: Agribusiness, Economy, Russia
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