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The Ministry of Industry and Trade has formulated the conditions for the introduction of labeling for new goods

New goods will be labeled unless their rise in price due to this exceeds the projected growth in household income in the next six years, and government and business revenues will be higher than the costs of applying mandatory codes

The Ministry of Industry and Trade has developed guidelines for defining new categories of goods for which the government can introduce mandatory labeling. The corresponding document, signed by the Minister of Industry and Trade Denis Manturov, is at the disposal of RBC.

Based on these recommendations, the ministry can prepare proposals for the government to expand the list of goods subject to mandatory labeling. The government, in turn, can instruct the ministry to assess the feasibility of introducing labeling for new product categories – this is given 90 days.

The Ministry of Industry and Trade confirmed that guidelines for labeling new products were approved on February 25, 2021. Representatives of business, industry unions and research institutes participated in their development. The guidelines will become an additional tool that allows the formation of analytical information necessary for the government to make a decision on labeling, the ministry official said, adding that the decision to introduce labeling is made “on the basis of many factors.”

Why do we need marking and what is already being labeled

The authorities plan to introduce a system of continuous labeling of goods in Russia by 2024. This is necessary to combat the spread of low-quality products and counterfeit products.

Mandatory labeling in the national system “Honest Mark” has already been introduced for goods from different categories: fur coats, certain types of clothing, shoes, perfumes and perfumes, tobacco products, medicines, cameras, car tires. Mandatory labeling for dairy products and bicycles will be introduced in 2021. Pilot projects are also testing labeling of packaged water, beer and wheelchairs. A special Data Matrix code is applied to the packaging of these products (a two-dimensional barcode made of black and white elements, usually in the form of a square).

The operator of the Chestny Znak system is the Center for the Development of Advanced Technologies (CRPT), a joint project of USM Holdings by Alisher Usmanov, Rostec State Corporation and Elvis-Plus Group of Alexander Galitsky.

The decision to introduce labeling for new products can be made if two conditions are met simultaneously. First, the increase in product prices for consumers after the introduction of mandatory labeling should not exceed the maximum permissible value within six years from the date of its intended introduction. Secondly, the balance of revenues and costs associated with labeling, both for manufacturers and for trading companies, and for the state should be positive.

If the balance of costs and benefits turns out to be positive, and the expected increase in consumer prices does not exceed the maximum level established by the government, the introduction of mandatory labeling is deemed appropriate, confirms the representative of the CRPT.

How price increases for consumers are estimated

The calculation of the marginal forecasted price increase is necessary, because when developing methodological recommendations, their authors, as follows from the document, proceeded from the assumption that the business can fully translate the additional costs associated with the preparation and introduction of mandatory product labeling into the final price for the consumer.

The government can set the price growth limits for a specific product after the introduction of labeling on it, but if this indicator is not set in its instructions, then the maximum price increase will be determined at the level of the growth of real disposable income of the population projected by the Ministry of Economic Development. In other words, as a result of the introduction of labeling, the increase in prices for products on which mandatory bar codes will be applied within six years should be lower than the increase in real disposable income of the population, as indicated in the reference materials available to RBC for the methodology.

According to the latest basic forecast of the socio-economic development of Russia published by the Ministry of Economic Development in September last year, real disposable income of the population will grow by 3% in 2021, by 2.4% in 2022, and by 2.5% in 2023. For subsequent years, the ministry made forecasts three years ago, before the pandemic.

However, in the CRPT, the assumption that manufacturers and sellers will completely transfer the costs due to labeling to selling prices is called radical. In practice, in a competitive environment, the coefficient of transferring labeling costs into prices cannot be so, insists the representative of the system operator.

How do business and government spend on labeling?

The balance of benefits and costs of a business consists of income from increasing sales by replacing illegal products with legal ones and, therefore, increasing profits from sales, as well as from the costs of ensuring labeling, indicated in the guidelines.

Among the main costs of manufacturers are the cost of the marking code (it is the same for all goods and is equal to 50 kopecks) and the cost of applying it, recalls a representative of the CRPT.

The costs of applying the code are different for each enterprise, since they depend on the volumes produced, the characteristics of production processes, etc. Therefore, the methodology uses the method of calculating “alternative” costs: when the code is applied to the product label in third-party printing houses (the cost of this procedure is known), and in production it is only glued. Many small and medium-sized companies use this scheme when printing labels, says a representative of the CRPT. Large producers, he said, find it more profitable to upgrade their existing printing facilities. Thus, the costs for them will be lower than that provided by the calculations according to the methodology, that is, when printing the code in a third-party printing house.

For the state, the balance of benefits and costs consists of revenues from increasing tax collection by replacing illegal products with legal ones, and the costs include budget expenditures for stimulating market participants, as indicated in the methodology. For example, in February, Deputy Prime Minister Victoria Abramchenko instructed to additionally support manufacturers of finished dairy products in connection with the introduction of labeling: according to the Ministry of Agriculture, the industry needs more than 8.6 billion rubles to reimburse the costs of equipment for applying and reading labeling codes. subsidies.

How labeling will affect the price of products

The marginal increase in prices was calculated for product categories for which labeling has already been introduced, as well as for those that are still being labeled in a pilot mode, for example, for bottled water, milk and beer, says a representative of the CRPT. He insists: in all categories, the rise in prices will be lower than the growth in real incomes of the population projected by the Ministry of Economic Development.

The influence of labeling on a possible rise in the price of dairy products for six years, in particular, was assessed by the Research Financial Institute of the Ministry of Finance. According to him, the contribution of labeling to the rise in price of such products, depending on the category, will be from 0.4 to 1%. The average cost of dairy producers for the introduction of labeling, taking into account the cost of the code, will be from 63 kopecks. up to RUB 1.1 per unit of production.

Soyuzmolok did not comment on these calculations.

The brewers disagree that the rise in consumer prices following the introduction of the label will not exceed the growth in real incomes. Each additional 1 rub. cost increases “ultimately give plus 2 rubles. to the cost of beer on the shelf for the consumer,” says Oraz Durdyev, representative of AB InBev Efes (brands BUD, Stella Artois, Velkopopovický Kozel, Corona Extra, etc.). This is due to the surcharge in the form of VAT at each stage of the chain, the markup of the wholesale link and the trading network, Durdyev points out. According to AB InBev Efes, the cost of equipment and revision of internal and warehouse accounting systems will amount to about $ 5 million for the plant, of which the company has eleven in Russia. As a result, the manufacturer incurs “huge costs, which are doubled for the consumer, respectively, on the shelf he will see a completely different price,” Durdyev sums up.

He also points to the lack of ready-made solutions for labeling packaging at high speeds of beer production, which account for 70% of the market. To apply current technologies, companies will have to slow down production by 30% – a decrease in production volumes will entail a decrease in excise revenue for the budget, a threat of closure of enterprises, and a reduction in jobs in beer and related industries, including agriculture.

Capital and operating costs from the introduction of labeling in the packaged water industry in the first year, according to the EY consulting company, will exceed 32 billion rubles, says Maxim Novikov, president of Soyuznapitkov. According to him, the introduction of labeling for packaged water can lead to an increase in prices for it up to 6-7% and a decrease in net profit to 30 billion rubles. in ten years.

The share of counterfeit products on the Russian beer market is estimated at 5–12%, and whitewashing it through labeling can increase the profits of legal producers by 2.5–3 billion rubles. and an increase in tax revenues, argues a representative of the CRPT. And with the mandatory labeling of water and the withdrawal of illegal products from the market for business and the state, a positive balance of expenses and incomes will develop – additional profit at the level of 12.7 billion rubles, the market of legal companies will expand by 1.7 billion rubles, the operator predicts.

RBC, TKS.RU