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Magnit to Raise Bread, Milk Prices as Drought Shrinks Harvest

OAO Magnit (MGNT), Russia’s second-largest food retailer, is raising prices for bread and dairy products as the country’s worst drought in at least half a century shrinks the grain harvest.

Bread prices will rise no more than 20 percent, and dairy prices will climb no more than 10 percent after distributors and suppliers demanded higher payments, Oleg Goncharov, a Magnit spokesman, said today by telephone. The cost increase will depend on the product and the region, he said.

“This is the first serious price increase for bread since the 2008 crisis,” Goncharov said.

Russia’s record heat and drought may reduce the harvest to 60 million to 65 million metric tons of grain this year, Prime Minister Vladimir Putin said on Aug. 9. The country, which produced 97.1 million tons last year, introduced a ban on grain exports yesterday to ensure domestic supply and fight inflation.

Distributors have been seeking increases of 3 percent to 30 percent from retailers on bread and milk prices since the beginning of the month, according to a survey of five Russian and international retailers by Bloomberg News.

“There is an objective reason, the poor harvest, but in some cases it’s a desire to profit from the situation,” Svetlana Vitkovskaya, a spokeswoman for X5 Retail Group NV (FIVE), Russia’s largest supermarket chain, said in an e-mailed response to questions. X5 is sending “inappropriate” proposals to the competition authorities, she said.

President Dmitry Medvedev ordered the government to monitor the pricing of basic food groups on Aug. 12. The Federal Anti- Monopoly service said today it is investigating three Moscow bread factories for raising prices by 20 percent.

Metro Cash & Carry and Auchan Russia are continuing talks with distributors, according to their press services.

Farmers in 23 regions may faces costs of at least 30 billion rubles ($980 million), Putin’s deputy Viktor Zubkov said in an interview published today in state newspaper Rossiyskaya Gazeta.

To contact the reporters on this story: Ekaterina Shatalova in Moscow at eshatalova@bloomberg.net

To contact the editor responsible for this story: Mark Sweetman at msweetman@bloomberg.net;

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