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   July 23
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Analysis & Opinion
23.08.10 Gone With The Heat
By Svetlana Kononova

The heat wave that hit Russia in mid-June and lasted for more than two months has finally passed. Russians are now enjoying refreshingly chilly weather, while analysts count the economical consequences of the environmental disaster. But while farmers dismally survey their ravaged wheat fields, ice cream sellers are reveling in enormous profits.

“At least 27 regions of Russia that cultivate grain have suffered direct losses from drought and forest fires since the beginning of August. In monetary equivalent, the losses from abnormally high temperatures amount on average to five to ten billion rubles ($167 to $334 million) in each region, not taking in account possible losses from decreased export volume,” said Maxim Klyagin, an analyst at Finam Management. “Although not all the regions have already counted their losses, it is estimated that Russian agrarians might lose about 100 billion rubles ($3.3 billion).”

Apart from the greatly diminished grain harvest, many regions have suffered losses from forest and peat fires. “According to the Federal Forestry Agency at the Ministry of Agriculture, the total damage from forest fires is estimated at 40 billion rubles ($1.3 billion). These costs will probably be covered by additional articles in the federal budget’s expenditure in 2010,” Klyagin added.

But analysts do not think agricultural losses will have any significant influence on the consumer market and the price of finished goods. “Yes, the consumer price index increased in the first weeks of August. It will probably rise in future, especially for some groups of foods, such as grains and vegetables. But even the most pessimistic forecast would add no more than two or three percent to the predicted level of inflation. From our point of view, possible risks would be compensated significantly by the government support measures. We currently expect inflation to run at eight to nine percent in 2010,” said Klyagin.

But the freak weather hasn’t been bad news for everyone. Some businesses made heady profits this summer. “Obviously, hot weather boosted sales of some consumer goods and services. Mostly businesses with strongly marked seasonal demand, such as non-alcoholic drinks, beer, and air conditioning equipment stand to gain. The demand for such goods has risen dramatically,” Klyagin continued.

Ice cream producers made extraordinary profits this summer. “The abnormal heat in the Moscow Region and in most of Russia has affected ice cream sales positively,” said Alena Shepitko, the marketing manager at the ice cream department of Nestle Russia. “Both our factories producing ice cream in Zhukovsky and Timashevsk were working 24 hours a day, seven days a week to keep our customers supplied with their favorite refreshments. In popular recreation spaces in Moscow, like Old Arbat and the Tsaritsyno Park, sales of Nestle ice cream doubled. Even the big chain stores (X5, Real, Alie Parusa), for which dramatic swings in demand are relatively unusual, have shown significant sales growth. The big hit was fruit ice cream, which sold ten times as much as usual. Moreover, consumers started to buy more ice cream to eat at home. Sales of brick ice cream have increased five times at the Metro chain and nine times at Mosmart.”

The summer of 2010 was also very fortunate for producers of beer and non-alcoholic drinks. For example, Ochakovo, a large producer of alcoholic and non-alcoholic beverages, has set an all-time record in the sales of kvass, selling three-times more kvass in July than in the same period of last year.

In contrast, the bottled water producer Shishkin Les has announced a pause in manufacturing starting August 6 due to abnormal environmental conditions. The production process involves using ordinary air, which has seen harmful impurities exceed the norm by five to eight times. Therefore, the company decided to stop production until air quality returns to normal.

The heat wave has also boosted the electronic goods business. “Sales of air conditioners and electric fans depend strongly on seasonal factors. For example, our stores in the Moscow Region increased sales by ten times in the first three weeks of June, in comparison to the beginning of the month. But in general, sales of air conditioners and fans in July of 2010 doubled in comparison with the same period last year,” said Sergey Pavlov, the head of public relations at Eldorado, a chain of household appliance stores. “Despite feverish demand, we tried to satisfy our customers’ need for high-quality cooling devices at a wide-range of prices,” he said. At the same time, research conducted by the Vzglyad online newspaper found that prices of air conditioners in Russia jumped by 300 percent during the heat wave.

It seems that air conditioners will become a source of profits not only for those who sell them, but for the Moscow authorities as well. Muscovites who installed split system air conditioners to survive during the abnormal heat will have to go through the expensive and time-consuming process of “legalizing” them. The procedure involves applying with a Technical Inventory Bureau and ordering a plan for alterations to the apartment, which could cost up to 90,000 rubles ($3,000). After that the plan must be approved by the local architectural administration. If the plan is approved, another application must be put in with the Moscow Housing Inspection Department, including both the original and a copy of the plan and a notarized statement of agreement for the air conditioner’s installation from all the people living in the flat. Experts say that the entire procedure takes from three to six months and could cost several thousand dollars. Flat owners who installed split systems and ignored these requirements can be fined and the air conditioners dismantled.
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