Russian Food Market Transformation: Income and Substitution Effects

Since 2014, the Russian food market has undergone a series of simultaneous shocks, including restrictions on imports from a few countries, a sharp increase in prices and a rise in the cost of raw materials due to the depreciation of the ruble. This paper presents a methodology for assessing changes in consumer welfare on the micro-data of RLMS household surveys, as well as the decomposition of these changes into income and substitution effects, that is, to reactions associated with higher prices to the real income of buyers and with a change in the supplied set of products. For calculations, an econometric model was used, which is a combination of traditional models that take into account economic and socio-demographic determinants. The evaluations show an increase in costs compared to the expected level with a decrease in the actual volume of purchases, that is, even an increase in spending did not allow the residents of Russia to maintain the required level of consumption, but the effects are different for the food groups under consideration. The monetary estimate of the losses from the transformation of the food market is approximately 900 rubles per month per family, and the reduction in consumption in 2013 prices was estimated at 560 rubles, which is a significant amount, especially if we consider that the analyzed RLMS base has a shift towards poor households.