Bread Price Attests to Foul Deals
25 October, 2012
Bread Price Attests to Foul Deals

Bread price ups and downs speak of dirty deals and monopolies in this sector of Georgian economy. As soon as the election campaign fever passed away by October 1, 2012, Georgian consumer faced a 15-20% growth of bread prices – prices on all sorts of bread went up by 5-10 tetri. The price hike did not come as a surprise in fact as far as the prices for wheat and corn increased significantly during the summertime on international market and the

only reason bakeries held old prices, was the political pressure of the ruling National Movement party [which became an ex-power after the elections] to gain hearts of electorate during the election campaign. 

Inclement weather almost halved the crop harvest globe over, jacking prices up by 20% during summer and situation get worse by the end of the year.  In its October report, the US agricultursl department  reduced its monthly forecast for global wheat harvest by more than 5 million tons to 653.05 tons compared to September; the forecast for global wheat reserves dwindled by 3.71 million tons to 173 million tons. Both Russia and Ukraine [regional wheat suppliers to Georgia along with Kazakhstan] are thinking to address to export restriction remedies starting mid-November and expect price hike at internal markets. Ukrainian experts predict a 20% growth in price of bread. Prices increased in neighboring Azerbaijan that by major supply depend on its own wheat production as well as in Armenia facing around 30% growth on bread prices starting this year.

Generally Georgian entrepreneurs including bakeries eagerly react on the slightest price-ups at the international market. But this time Georgian bakeries maintained old prices until elections [reducing the weight bread to offset the losses] and gave a vent to feelings after elections.

According to Malkhaz Dolidze, the Chairman of the Association of Bread Producers as well as Director of Bakery#4, the reason to the October’s price-hike is high prices on flour that makes roughly 50% of the bread self-price. Flour prices crept from GEL 38-39 fixed per a 50 kilogram sack of flour in September to GEL 47 in October affecting the self-price of bread.

“When prices exceed GEL 40 per sack it makes the self-price of the bread expensive, but GEL 44 is a real critical level and after crossing this limit I have to work on an insignificant profit of 3%, while an entrepreneur needs at least 5% in profit to maintain and develop business,” Dolidze said in the interview with Georgian Journal.

He thinks the key reasons of high prices on bread in Georgia are the lack of strategic reserve of wheat [Georgia consumes around 800 thousand per year] and the monopoly at flour market.

“There is no competition at the market. You can get only locally produced flour that is more expensive than the imported flour. The state decided to boost local production and it encourages mills to grind the imported wheat rather than import flour. Ultimately we have no choice,” Dolidze said however shied to elaborate why bakeries cannot import the flour themselves.

Levan Silagava, Head of Association of Wheat Entrepreneurs incorporating mills and wheat traders, counters the reason for high prices on flour is the price hike on wheat at the international market increasing from USD 250-270 in January of 2012 to USD 350-370 in October.

Silagava assures it is the quality not the monopoly that hampers the flour import.

“Wheat can be kept for 5-6 years while flour is a fast-perishable product and can be stored for a maximum year, besides the due-quality-standard flour is very expensive to import. Cereal producers for example need flour of higher quality than bread-flour from technological point of view and they do import flour without restriction. Who baffles bakeries to import flour too?” Silagava elaborated with GJ.

According to him, the issue traces back to 2004 when the liberally inclined rose-government canceled quality certificates on flour and the under-quality cheap flour infested Georgian market. Countries exporting flour especially Russia and Turkey as well as Ukraine and Kazakhstan [major flour supplier to Georgia] have intricate legal schemes to enjoy profits of expired flour reserves that entered Georgia though damping prices. Turkey for example to boost its national export fixes 135% of customs tolls on the imported flour. On the other hand, the state covers 30-40% of the imported wheat price to those entrepreneurs who have already imported wheat, reprocessed it and exported the flour. Thanks to this preference Turkey is the second biggest wheat trader world over. Russia has mechanism to sell out the expired flour reserves by at least USD 3-4 cheaper.

“We are in a very aggressive environment, and to hurdle the low-quality flour import in 2009 the state restored the quality certificate demand on the imported flour. But permissions on the flour import requires good quality flour standards that are expensive to import and this is the reason bakeries do not import flour,” Silagava said.

Badri Ramishvili, an agriculture marketing analyst, believes the bakeries’ presumption on the market monopolization are not groundless as far as Georgian food market is largely monopolized. But he also doubts that bakeries themselves also enjoy deals since none of them reduced prices on bread after the flour price almost halved past summer.

Analysts believe flour makes less than 40% of bread price [although bakeries insist on 50-60%]  and if crop price reduces by 20% bread price is also supposed to have a 10%  drop. The price per sack of flour reduced roughly by 40% since February of 2011 to March of this year [from GEL 52 to GEL 30 per sack] but no price-slump ensued.  Dolidze explains bakeries had to reimburse losses they faced during the price hike in 2010-2011 but Ramishvili believes that halved flour prices  must be reflected on the product whatever the entrepreneurs excuses can be.

“But there is a psychological effect too; our entrepreneurs are eager to increase prices when the market trend allows but they react reluctantly on the price-slumps,” he said.

Print
Other Stories
Georgian citizens are granted the right to work in France
The French Embassy in Georgia made remarks on granting Georgian citizens the right to work in France
The New York Times: Bitcoin declines but Georgia still bet on it
The New York Times has recently published an article about reasons, challenges and causes of generating Bitcoin in the former Soviet country Georgia.
EU to allocate € 13 billion for Eastern Partnership countries, including Georgia
The European Union together with the World Bank plans to allocate investment worth € 13 billion for infrastructure projects in the Eastern Partnership countries.
Anaklia Port and its importance for Georgia
In 2016, Anaklia Development Consortium was authorized to launch the construction of Anaklia Port.
Cryptocurrency mining threatens electrical network in Abkhazia
In the breakaway region of Akbhazia rampant cryptocurrency mining is threatening the shaky electrical network, reports an article of the news portal EuroNet.
Caucasus Wine University to be opened in Gurjaani
In the Kakheti region a new viticulture campus of the Caucasus University is in the process of planning.
Photos describing life of the poorest in Georgia
Fight with poverty should be among top priorities of every government in every country.
Training farmers to rescue the organic hazelnut production in Georgia
Even drizzling rain and unpleasant gusts of wind can’t prevent the farmers from coming and participating in the agricultural training.
Bleak times for organic farmers in Georgia – but there is hope
Organic hazelnut production is a delicate plant in Georgia that has emerged just a couple of years ago. Various pests, among them the Asian stink bug Parosana, trouble hazelnut farmers and menace their livelihood – even before their businesses could really take off.
Hybrid car imports are going through the roof in Georgia
Thanks to their fuel economy, the popularity of hybrid cars is increasing in Georgia, where fuel affordability is low and prices for fuel are unstable.
The New Year offer from MAQRO Construction - Apartments with unbelievable discounts and the parking spaces for FREE!
Location, green yard, spaces for various needs, experience of the construction company and parking space are the main important criteria for potential buyers of apartments.
Interview with the co-founder of Kiwi Vegan Café – the first vegan place in Tbilisi
Behind the Kiwi Vegan Café stands a group of activists who wants to raise Georgian’s awareness for animal rights and welfare.
Biblusi opens first shop for tourists - Georgian
The largest book shop in Georgia Biblusi opens the first shop specially designated to the needs and interests of tourists and named it Georgian.
Georgia improves by five ranks in the Prosperity Index
In the overall Prosperity Index rankings, Georgia has climbed by 5 positions from 85 to 80 when compared to last year. As such, Georgia is the best performing country in the CIS zone.
The future is bright for electric cars in Georgia
The numerous hybrid cars in the streets of Tbilisi cannot be overlooked. Entrepreneur Sulkhan Gvalia calls them “pagers”, referring to the predecessor of mobile phones.
Georgia’s fight against the big tiny enemy – Asian Parosana
It’s a tiny creature, but the harm it did to the Georgian agriculture sector was and still is immense.
New cable route: from Kobi to Gudauri in 15 minutes
On the 15th of December, cable transport is scheduled to be opened connecting Kobi and Gudauri.
Tourist boom in Gudauri – majority of hotels are booked by foreigners
Gudauri is among the most popular winter resorts in Georgia.
Medical tourism increases in Georgia
In the last 9 months, Georgia was visited by 19 500 foreigners for medical and recovery purposes.
Doing business in Georgia has become easier than in America
According to the Doing Business 2019 report published by the World Bank, Georgia ranked 6th among 190 countries in terms of simplicity of doing business. This was an improvement over two ranks compared to last year.
Problems that foreigners frequently face in Georgia
The importance of Georgia as a tourism hub is growing year after year.
Tbilisi TV Broadcasting Tower – Better than the Eiffel Tower?
It is planned to renovate the Tbilisi TV Broadcasting Tower, one of the landmarks in the capital.
Georgian Fusion Menu by The Biltmore Hotel Tbilisi
5,895,914 international visitors have visited Georgia between January and August of 2018. Compared to the previous year the number has increased by 12.2 per cent.
Advertising of gambling and lucrative games may become banned in Georgia
Advertising of gambling and lucrative games may become banned in Georgia. Those who violate the new rule would be fined GEL 10 000.
Lebanese café-lounge Beirut opens in Tbilisi
What is necessary to organize an unforgettable event? – Fun, emotions, lots of surprises, good music and delicious menu.
PHOTO OF THE DAY
GEL Exchange Rate
Convertor
19.02.2019
20.02.2019
USD
1
USD
2.6404
2.6498
EUR
1
EUR
2.9908
2.9977
GBP
1
GBP
3.4130
3.4246
RUB
100
RUB
3.9898
4.0023
Other Stories
Recently Toyota rolled out Global Campaign under this slogan that reflects the Olympic and Paralympic Spirit of Encouragement,
A couple from Switzerland combines Swiss tradition and technology with Georgian products. Their cheese is made in the Georgian mountains and sold in local stores and hotels.
It has been more than five years since the residents of Lilo village, near Tbilisi, cannot open their windows.
63 000 GEL was received by the Georgian Agro Export Group which is just a small part of the European Neighbourhood Programme for Agricultural and Rural development.
Georgian entrepreneur Guka Tavberidze, who runs his own business in the UK and does it quite well, has been invited by BBC
The grand opening of 7-star The Biltmore Hotel Tbilisi took place in Georgia’s capital on July 31.
DUSHETI, Georgia – The Georgian government and the World Bank will allocate USD 5.6 million (12 million GEL) to fund
A new Georgian clothing brand named Person has emerged in Georgian market.
Georgia is in the midst of an economic maelstrom, Euronews reports.
Situation at Georgia’s mineral water market is interesting: over the last year, the volume of export has grown by 56 percent. According to “GeoStat”, over $114 million worth of mineral water was sold
GEL Exchange
USD
1
USD
2.6498
EUR
1
EUR
2.9977
GBP
1
GBP
3.4246
RUB
100
RUB
4.0023