Russia’s summer natural fires and their impacts on the citizens and economy
Angry opposition legislators that returned from holidays in September for the new autumn session of the State Duma have roundly condemned the government and ruling party for the unprecedented negative consequences of this summer’s cataclysms and their failure to prevent most of the largely avoidable anthropogenic accidents that almost put the country on the brink of a national catastrophe.
However, apart from the caustic criticism, the lawmakers also put forward a number of new initiatives, including proposals for radical amendments of the Land and Forestry Law and Fire Safety Law, aimed at preventing in the future the reoccurrence of the type of the deadly combination of anthropogenic and natural disasters in the country. Failure to react to these horrible summer cataclysms, according to the lawmakers, would be interpreted by many as ‘blasphemous and insulting’ to the memories of the citizens, who had either lost their lives or suffered other terrible damages in these largely preventable anthropogenic accidents.
The caustic statements were the first reaction of the opposition parties to the terrible situations in central Russia this summer, while such words as ‘massive wild fires in Russia, killing and destroying people, towns, villages and properties at will and random’ were the most frequently heard expression in most parts of Russia this summer. Indeed, the frequent use of this phrase would make one think of a remake of one popular South African song. However, the repeated mentioning of these words was not in connection with a poor attempt at plagiarism of the globally famed anti-Apartheid song, but a reflection of the stark reality that faced Russia and its citizens in this summer.
“The lawmakers put forward a number of new initiatives aimed at preventing in the future the reoccurrence of a fatal combination of anthropogenic and natural disasters in the country.”
Without any doubts, the summer months of 2010 will, undoubtedly, go down as the worst period in contemporary Russian history in terms of the unprecedentedness of abnormally record high temperatures, lengthy drought and enormity of the scope of forest fire outbreaks that killed scores of citizens and rendered thousands more homeless and destitute across the country.
Besides, the resultant smog from the fires that hung over several cities in central Russia, blurring most of the nation’s landmark objects, business and social infrastructures, delaying 64,000 flights and stranding over 1mln passengers across airports nationwide, also made lives miserable for citizens that survived the infernos, droughts and abnormal temperatures.
Most citizens were forced to radically their change summer plans, traditional life styles and daily routines to combat these catastrophes. For instance, Russian President Dmitry Medvedev, reacting to these natural disasters and their negative effects, cut short his summer vacation and returned back to Moscow to personally oversee measures adopted to combat the natural cataclysms and their consequences.
Computing the losses from the cataclysms
While the official figures on damages are not expected before the end of the year, analysts at HSBC and UraSib Banks have preliminarily estimated the losses suffered by the economy at 1% of 2010’s forecast GDP of 44.8trln rubles, or about 450bln rubles (almost $15bln). This figure, the analysts warned, only refers to the direct losses and short-term negative consequences for the economy as no one has fully computed the more serious fallouts from these destructions.
Indeed, the analysts’ preliminary estimates are really only just the tip of the iceberg, a fact collaborated by data from other reliable sources. Thus, according to the Agriculture Ministry’s data, the droughts have destroyed almost 10mln hectares of arable land and crops in over 30 regions. This figure, according to the National Union of Cereals Producers (NUCP), is about 20% of the nation’s estimated 50mln hectares of arable land. “A phenomenon of this scope has not been seen in Russia since the devastating droughts of 1972 that almost put the Soviet Union of the brink of a food crisis,” Alexander Bedritsky, the adviser to the Russian president on climatic issues, noted.
Consequently, the crop losses expected this year will significantly pale in comparison to the record of 97mln tons in 2009, the NUCP said, noting that such harvest parameters will only be a dream in this current season. Putting these data into perspective, Pavel Skurikhin, the NUCP president, said the droughts could lead to a harvest of about 72-77mln tons of cereal in 2010, or a loss of 20-25% from 2009. “I would like to remain an optimist and hope that these forecast figures remain the way they are today, as this implies that the consequences from the droughts are more or less bearable consequences,” he added. Sharing the same view, Valentin Denisov, the State Duma Agriculture Committee chairman, such volume will mean that Russia will not have to resort to importation of cereals to meet its local needs.
The other cataclysm, the wild forest fire outbreaks, almost a final ‘coup de grace’ to farmers and other citizens as the firestorms destroyed everything on their parts, leaving behind unheard-of human sufferings, utter devastations, unbearable despairs and agonizing ruins in villages across central Russia. The real extent picture of human sufferings is vividly illustrated by the Federal Regional and Emergency Situations Ministries’ preliminary data, which put the number of deaths at 52, the number of houses destroyed at almost 2,000 and citizens rendered homeless and destitute at over 3,500, and still rising. In Moscow, the abnormal weather conditions have been blamed for skyrocketing mortality rates, as the average daily death rate rose to 700 from the normal rate of 360-380 people per day, according to .Andrei Seltsovsky, head of Moscow's Health Department.
Similarly, the non-human related losses from these fires were also unprecedentedly high. According to the Russian Forestry Agency and other services, the property losses are currently estimated at between 50bln-75bln rubles, a sum that includes the cost of fighting the fires, projected expenses for re-forestization of devastated land to avoid more ecological harms. The consequences for farmers — both individuals and corporations — are even more colossal, as their collective financial loss currently stands at over 150bln rubles and rising. Consequently, their fates — taking into consideration the fact that most farmers, especially the individual ones, had used bank credits collateralized with the future harvests to bankroll their operations — are currently unclear, as most face imminent, and most probably, unavoidable bankruptcies.
Footing the bills and compensations
Their only hope is on the government that has pledged huge financial support in forms of subsidizations of parts of these losses and help via agro-related banks to restructure and/or refinance their debt burdens. Another source of help is the insurance companies, but here some specific, industry-related limitations will make such financial aid less effective for the crisis-stricken farmers. Key among these limitations is the fact that most farmers, as a rule, do not traditionally insure their operations, and consequently, cannot pass their losses to insurance firms. Speaking on these issues, First Deputy Prime Minister Viktor Zubkov noted that a situation, where only 20% of farming operations are currently insured and the rest left at the mercy of all types of cataclysms, is no longer acceptable. “This is why the government is planning to push regional administrations towards stimulating local farmers in their regions to insuring their operations.”
The other side of the coin is the fact that most insurers, being profits-seeking and not philanthropic organizations, often prefer, where not explicitly stated, to treat all cases of natural catastrophes as ‘typical force-majeure issues’ and, consequently, not liable for compensations. The resulting legal stalemates often require protracted litigations, a reality that favors the insurers as most farmers usually do not have lawyers on their payrolls, nor can they afford the huge legal bills for such lengthy litigations. Consequently, most victims do not legally challenge such negative verdicts on their legal claims.
Again, a concrete aid from the government in form of pressurizing such dubious insurers to meet all legal claims from natural catastrophes will be highly welcome among the farming community as the only way to force insurers to honor their obligations. Indeed, relevant laws are being put in place to prevent such ‘pseudo-legal maneuvers’ by insurance companies in the future. “Under these laws, farmers will exactly know what conditions constitute insurance cases and the exact amounts of compensations in cases of crop losses due to natural disasters,” Igor Zhuk, the chairman of the Agro-Insurance Committee of the Russian Union of Insurers, said.
Expectedly, these negative phenomena have put enormous additional financial burden on the government, which, constitutionally, is a socially oriented state. Consequently, it is legally bound to compensate these losses for citizens, a socio-economic responsibility that it has not only pledged to honor in full, but has actually started to do so. Thus, fire victims that had lost everything will initially get 10,000 rubles for immediate needs and up to 200,000 rubles each in compensation for their property losses.
A maximum of 3mln-ruble compensation each will be disbursed to owners of destroyed private houses, while new apartment buildings will be erected for those that lived in buildings destroyed by the fires. “These houses and apartment buildings are to be delivered by November 1, before the onset of winter,” Russian Prime Minister Vladimir Putin noted. The government also plans to spend 54bln rubles on state-of-the-art firefighting aircraft and trucks to battle future emergencies.
Local and international implications of these hazards
The unprecedented nature of these catastrophes only means that crop harvest will be much poorer this year than previously forecast, and much less than those of 2009, seen as a record year for the Russian agro industry. Consequently, independent economists fear that these negative trends could trigger significant hikes in all food products’ prices, including those that did not directly suffer from these cataclysms. This stems from the obvious fact that farmers in attempt to compensate for their losses could increase prices on their products, while intermediaries, capitalizing on the prevailing negative trends, could also follow the ‘bandwagon effect’ by hoarding their foodstuffs to cause artificial deficits, and later selling them at higher prices for bigger profits.
“Experts fear that the negative trends from the abnormal summer conditions could trigger hikes in all food products’ prices, including those that did not directly suffer from the cataclysms.”
According to the federal statistics agency, Rosstat, the prices of cereals have risen by 20% since the natural cataclysms erupted in the country. The same view is shared by the NUCP, which expects the prices on cereals to more than double in 2010. “Prices are on the hike everywhere — both for buyers and sellers — but the hikes are more drastic for the buyers,” Vladimir Petrichenko, CEO of ProZerno, an agro firm, said. “This is because the market has swiftly changed from the buyers market to the sellers market. Today, the sellers are in a ‘waiting mode, waiting for the right moment to start dictating and imposing their terms on the market.”
However, the government, expecting such ‘criminally tainted economic diversion,’ has promised to severely come down on all entities that will illegally manipulate ‘this period of national catastrophes’ for lining private pockets. “Market is market, but we will not condone any attempt to speculate on prices during these difficult times,” Putin said, as he signed a new resolution fixing the maximum prices for 24 food items, which no retailers ought to exceed without facing the wrath of the state. The ban, which will be enforced only in the regions, where foodstuff prices will have gone up by over 30%, will last for 90 days from the date of its introduction.
In line with the above official policy, the government has also banned, albeit temporarily, the exportation of cereals, citing the preeminence of the need to meet its domestic demand. Speaking on this issue, Elena Skrynnik, the agriculture minister, noted that with 24mln tons of reserves of cereals accumulated from previous years and average annual national consumption rate of 77mln tons, Russia will have enough to meet its domestic needs. It goes without saying that such export ban by Russia, the world’s third largest grain exporter, did not go unnoticed on the international markets, as global prices on cereals have risen by between 35%- 40% since the ban.
The gainers from the hazards
But this summer’s natural weather abnormalities were not only a story of unprecedented losses. There were gainers as some business executives, especially in the pharmaceutical, medical, frozen food and air-conditioning sectors, did all their best in line with the aged proverb that says, “one man’s loss is another’s gain” to maximally capitalize on the new market trends. Some doubled, and even tripled, their profits as they increased prices several times, compared to their traditional annual seasonal averages and pre-crisis values. For instance, a medical mask, with pre-crisis price tag of 5-7 rubles, was on sale for 50-55 rubles in central Moscow at the height of the smog intensity, when the concentrations of dangerous pollutants in the air hit record levels, Seltsovsky added. This figure, according to Health@Mail.ru & Goods@Mail.ru, an online portal monitoring marketing trends, represented a price hike of 25,000-30,000%, a number that made the previous record registered at the peak of swine flu, when such masks were sold for 25 rubles apiece, infinitesimal by comparison.
Similarly, producers of ice creams, juices, cold water and other types of mineral waters also boosted their operations as volumes of liquids consumed to bring the raging body temperatures to normalcy also hit record levels. The same for sellers of air-conditioning facilities, who were also on the winning side, as they made excessive profits as the demand for these gadgets soared to unprecedented heights. For instance, the prices for ventilators rose by 3,200%, ACs by 1,200%, while air filters and refreshers rose on average by over 800%, compared to their seasonal averages and prices prior to the onset of the abnormal temperatures, according to Goods@Mail.ru.
“The droughts and resultant losses of crops could exacerbate the negative after-effects of the current economic crisis, worsen social tensions and increase public discontent.”
Naturally, these ‘artificially hiked prices’ had caused concerns not only among end users of these facilities, but also at the Federal Antitrust Service (FAS), which has initiated an official investigation into the issue. “Based on the complaints filed by both individuals and organizations, we have decided to study the price situation on sale of weather-conditioning goods in this period with the aim of determining their reflections of the real demand and traditional seasonal trends,” the antitrust agency said.
Locally, experts say the summer natural disasters could have far-reaching negative political implications for the government. “The droughts and resultant losses of crops could exacerbate the negative after-effects of the current economic crisis, worsen social tensions and increase public discontent,” Boris Kagarlitsky, the director of the Institute of Globalization and Social Movements (IGSO), said. Besides, the rising food prices, according to Vasily Kotashov, the director of the IGSO’s Center for Economic Researches, will contract the local consumers market and radically alter the citizens’ spending behaviors. “Consequently, the resultant decline in demand for goods and services will instigate another cycle of massive lay-offs and salary cuts, negative trends that could put a halt to the current recovery trends in the economy and exert depressing impacts on the socio-political situations in the country.”
To avoid future repetitions of these cataclysms and/or mitigate their negative consequences, Emergency Situations Ministers Sergei Shoigu has called for creating a special Weather Experts Group in the Russian Academy of Sciences, while Russian Metrological Service Director Alexander Frolov also said that plans are in pipeline to create a National Climatic Center. Both institutions are to the study the effects of abnormal weather and climatic conditions. “We have never had such abnormal weather conditions before. This is why we need a professional group of experts to study these new weather phenomena and tell us what next to do,” Shoigu noted. “For this purpose, we need experts that will not just fantasize, but really use their scientific knowledge to give clear and practical forecasts.”
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