Carnelutti Russia

Business Alert. October 2021


1. Russians' spending on footwear has grown

In Russia, the average order value in footwear (for boots or sneakers) almost tripled in a year: it increased by 192% up to 4,500 rubles. The numbers are shown in research carried out for the news agency RIA Novosti by SBIS, a fiscal data operator.

In particular, the research studied anonymized data regarding average order values for the above category in the first semester of 2020 compared to the first semester of 2021.
Average spending on clothing also saw some growth, but less significant. Thus, in the first semester of 2020, Russians spent about 2,300 rubles, while in 2021, this figure increased to 2,600 rubles.

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2. FFD 1.2.: a new format of fiscal documents

Those business entities that sell goods subject to mandatory labeling through identification shall use a new format of fiscal documents (FFD 1.2.), which was introduced on August 6, 2021.

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According to Federal law N. 54-FZ dated May 22, 2003, "On the use of cash register equipment for settlements and payments in the Russian Federation," a new cash register can only be registered after August 6, 2021, if it and the fiscal memory device support FFD.1.2.

All those who plan to sell the following categories of labeled goods will have to adopt the new format:
- Pharmaceuticals,
- consumer goods industry,
- footwear,
- perfumes,
- tobacco,
- photography equipment,
- tires,
- dairy products (from 2022).

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3. New rules for labeling of dairy products

New rules for labeling dairy products became effective with the adoption of Government Regulation N 2099 dated December 15, 2020, which introduced a mechanism that tracks a product from the producer to the end consumer. The dairy products shall be labeled with a special identification code (Data Matrix). Importers and producers shall register such products, whereas the sellers shall record the arrivals of the goods and their further movement in the special state system of labeling called "Honest Mark."

The requirements for labeling of dairy products are entering into force step by step according to the following schedule:
- June 1, 2021 - cheese, cottage cheese, ice cream, and food ice
- September 1, 2021 - products with its shelf life exceeding 40 days
- December 1, 2021 - products with shelf life less than 40 days.

Starting from these dates, the production and sale of the respective products without labeling may entail administrative responsibility.

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4. The growing popularity of deliveries

According to a study carried out by Russian Standard Bank, in the period between January-August 2021, the number of purchases with delivery increased by 38% compared to the same period in 2020, while the average purchase value decreased by 3%.

Interestingly men ordered 3% more deliveries than women in the first eight months of 2021. However, women's average order value was higher than men's: 5,778 rubles against 4,532 rubles, respectively.

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5. H&M expands its presence in Russia

According to Saed-El-Ashkar, regional CEO in Russia, fast-fashion retailer Hennes & Mauritz AB (or H&M), the second-largest clothing chain in Europe, is
considering setting up manufacturing in Russia.

The retailer, having more than 150 stores in Russia, on September 30, opened its flagship store – the largest in the country – in Mega Tyopliy Stan, Moscow.

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6. Wildberries' payment policy: other retailers might follow suit

Retailers are thinking about providing discounts for payments with Russian payment systems, as Wildberries did earlier, the marketplace itself announced.

Wildberries clarified that 220Volt, a chain for electronics and housewares, might become the second retailer to start using the discount model for Russian payment systems.

Earlier, Wildberries changed the payment terms for online orders and introduced discounts for customers using payment cards Mir, or Fast Payment System, or SberPay. On the other hand, those paying with international payment services will be charged a commission of 2% of the purchase price.

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1. Commonly used food additive E171 is no longer considered safe

The European Food Safety Authority (EFSA) has announced that the food additive titanium dioxide (E171), commonly used as a food color in fine bakeries, soups, broths, and sauces, is no longer considered safe for consumers.
EFSA is concerned that genotoxicity after consumption of titanium dioxide particles cannot be excluded.

Although EFSA does not have the authority to ban the food additive, the European Commission and the Member States of the European Union might take regulatory actions.
Following the findings of EFSA, Rospotrebnadzor announced that it would also carry out a safety assessment of food additive E171.

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2. Updated program on the development of interstate food standards is adopted

On June 21, 2021, the Board of the Eurasian Economic Commission adopted a new edition of the program to develop interstate standards for the technical regulation "On food safety."

The said interstate standards will be prepared to identify specific food products (bakery and confectionery products, meat, vegetables, tea products, and others).

In addition, specific interstate standards will be developed for the methods of determining macro-and micronutrients in biologically active supplements, sanitary and parasitological expert survey for vegetables, berries, and plant products, as well as for methods of determining antibiotics, organochlorine pesticides, probiotic microorganisms, and iron admixture in food products.

Moreover, other already existing 45 interstate standards will also be amended according to the new program.

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3. The Government plans to impose control overproduction of natural water

Minpromtorg, Rosnedra, and Center for Development of Advanced Technologies aim to establish a system of water approbation from boreholes and up to retail stores.

Currently, the control is only exercised over the already packaged products and is not carried out at the level of water extraction from boreholes. The proposed system, similar to the one used in the alcohol market, will fill this gap.

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4. Russian delegation participated in the meeting of agriculture ministers at the G20 Summit

On July 27, 2021, the Russian delegation headed by Sergey Levin, Deputy Minister of the Ministry of Agriculture, participated in the meeting of agriculture ministers of G20 members.

Discussion of such problems as world hunger, cooperation in the agricultural sphere, and a sustainable food future was high on the agenda of the meeting.

The ministers noted that after several years of positive dynamics in the fight against hunger on the planet,

the number of people suffering from malnutrition increased again and reached 815 million people.

As a result of the meeting, the ministers adopted a joint declaration reflecting the main discussed issues.

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5. Bill on the restriction of food products disposal is introduced

A bill that bans disposal, destruction, and burial of food products fit for consumption has been submitted to the State Duma.

According to the draft, it was suggested that retail stores and other owners of food products should give away gratuitously to people the products the expiry date of which is within three days or less.

For the expired food products, recycling for animal feed was proposed.

In return, the owners of food products may benefit from VAT exemption concerning such products.

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6. The retail margin on food products might be restricted

The Federal Antimonopoly Service (FAS) is allegedly preparing a bill that restricts the retail margin on food products. In the meantime, it was suggested that retail stores should review the margin voluntarily, which is subsequently to be reported to the FAS.

The initiative stems from the previous message of the President of Russia addressed to the competent authorities to monitor the situation related to retail prices on food products.

Based on their estimates, the commercial margin for food products remains significant: 44% for millet, 41% for beet, 40% for tea, and 30% for rye bread.

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Industry and Machinery

1. Rostech will create a new holding

The state corporation for the promotion, development, production, and export of high-tech industrial products Rostech (Rostech) announced its plans to establish a holding company specializing in developing and producing heavy processing machinery and tools for industry.

The holding company will include Rostech's existing machine tool assets.

The holding intends to reach up to 50% of the Russian industrial equipment market by 2030.

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1. Growth of the Russian economy

On October 1, the Federal State Statistics Service of Russia (Rosstat) published its Bulletin "Social and Economic Situation of Russia" in January-August 2021.

The Bulletin shows positive dynamics of Russia's GDP in the second quarter of 2021 compared to the first quarter of 2021 and the second quarter of 2020.

Significantly, the industrial production index also increased.

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2. The new measure of state support for small and medium-sized businesses

The SME Corporation and the Ministry of Economic Development of the Russian Federation have launched a new financial instrument of state support for businessmen, a so-called "umbrella" mechanism for providing guarantees.

This new measure will expand the opportunities for SMEs to obtain loans, especially for a whole segment of entrepreneurs who previously were unable to qualify for them. The new umbrella guarantee mechanism will also reduce the final interest rates for borrowed funds and, at the same time, provide up to 50% of the loan amount.

Moreover, businesses will receive loans instantly in a bank thanks to a single-window mode without contacting the SME Corporation since the entire document flow between the participants will be digitalized.

In addition, the commission for the guarantee will be paid by the bank itself.

In a selection procedure, which took place from August 31 to September 6, the following banks were chosen as participants of the pilot project: Otkritie Bank, PSB, RNKB, Sberbank, VTB, and SME Bank.

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3. Russian pet food market continues to expand

The pet food market performed well throughout the pandemics and showed good growth: according to Euromonitor International, in 2020, it increased in Russia by 10.1%.

According to industry experts, the number of pet food companies is rising along with the number of pets themselves.

However, the region's pet food market is still too large to have intense competition, and even a new major player is unlikely to change this situation.

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