Bread price reached its maximum
06 September, 2010
Bread price reached its maximum

Recent bread price increase by 20% over week triggered fears and speculations that Georgia may face wheat deficit and that more bread price hike looms in prospect. The sector pundits say the reason is the crop failure this year although they believe the price reached its maximum and no more price hike is expected at international market. However, Georgian government does not rule out further increase of prices on bread and seeks for more wheat markets to prevent the possible

price hike on the essential product.

Recent bread price increase by 20% over week triggered fears and speculations that Georgia may face wheat deficit and that more bread price hike looms in prospect. The sector pundits say the reason is the crop failure this year although they believe the price reached its maximum and no more price hike is expected at international market. However, Georgian government does not rule out further increase of prices on bread and seeks for more wheat markets to prevent the possible price hike on the essential product.

On the other hand, bread and flour price seems speculative. Some smart bakeries and flour vendors take advantage of the situation to enjoy as much profit as possible and increase price more than the economic factors determine it.

Prices on bread in Georgia increased by 5 tetri initially somewhere by August 20-22, and in two-three days they increased by another 5 tetri again. Ultimately the price increased by 10-15 tetri that translates into 20-25% of price hike approximately. Today the cheapest average quality bread cost [varying between 45-50 tetri before the price hike] fluctuates between 60-65 tetri and the weight of bread apparently reduced. But the familiar bread-shape is kept in size thanks to increased portion of dough-rising substance.  And the bread that is affordable for vulnerable stratum of society looks much like a fluffy bun or a sponge rather than a normal bread.

The reason is partly based on economic factors, as the flour that makes 50% of the increased price [according to calculations presented by bakeries] became expensive due to crop failure globe over this year. But another 50% of the increase comes with other factors including energy, oil, fuel and other expenses.   In other words, out of 10 tetri of increase in bread price, only 5 tetri comes with the flour. Why the other expenses increased by 5 tetri in a week [when no currency depreciation, price hike on oil and fuel took place] is not clear. The problem is ascribed to crop failure officially.

Price per ton of wheat increased from USD 250 to USD 330-350 [including transportation costs] during a month and a half for Georgian wheat importers [including transportation costs].  The reason is crop failure globe over [including Russia, Ukraine and Kazakhstan-the key providers of Georgia] and price hike at the international market, the sector pundits say and government reiterates it permanently predicting more price hike on bread.

On the other hand government assures there is no ground for panic and works on anti-crisis plan that will be presented in a week. According to Bakur Kvezereli, Minister of Agriculture of Georgia, they work on two plans actually. The short-term one includes remedies to keep prices on bread by the end of the year, and another long-term one aims on local crop/corn culture development in Georgia. Moreover, the plan aims on diversification of importers so as not to be dependent only on regional suppliers.

Georgia consumes about 800 thousand tons of wheat per year, about 15% is local production if it is a year of heavy crop [that equals 100-200 thousand ton per year], Russia makes up over 60% of entire Georgian consumption usually, and the remainder part of wheat supply is equally redistributed by Ukraine and Kazakhstan.

This year Georgian local crop production accounted for just 80 thousand [10% of the entire consumption], and all its key suppliers suffered of bad harvest too: Russian harvest reduced by one-third of the prognosis amount [it harvested 60 million tons instead of expected 95 million tons of crop] due to draughts. And yet it has some reserves. Russia stopped export for it consumes about 78 million tons per year and has to think of its own needs.

Ukraine and Kazakhstan harvest also decreased but much slightly than Russian, and they are supposed to replace the Russian import for Georgia, Levan Silagava, Executive Director of Georgian Wheat Association, presumes.

"There is no ground for panic actually," he told Georgia Journal. "Yes Ukraine intended  to stop its export but Ukraine unlike Russia is a member of the World Trade Organization (WTO) and cannot prohibit its export. Therefore it planned to introduce export quotas but the issue is delayed till September 15, 2010 and it is going to export 14 million tons of wheat, Georgia consumes 800 thousand all in all and it will not be difficult for Ukraine to supply Georgia in fact."

Ukrainian ambassador in Georgia has already announced [on August 26, 2010] that Ukraine will provide Georgia without restriction. The problem is the price of bread in retail actually that can cause a price hike generally on other products. Government assures that the global wheat harvest reduced by 25% that jacked prices up at the international market, and fears of further price hike in Georgia.

According to Silagava, the global wheat harvest reduced just about 8-10%, instead of averagely expected  650 million tons  of wheat the international crop reduced by 50 million tons, this balance is already established at the international market and  the prices most probably reached its maximum.

"All corn producing countries except US suffered of crop failure this year, and most probably US will take advantage of the situation and supplant Russia, Canada and other big wheat exporter countries at their markets. The international crop balance is already calculated, based on it the price stands at USD 300 per ton at the international market, and there is no economic reason for further price hike actually," he said.

 

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