Bread Price Stability Depends on National Reserves
28 July, 2011
Bread Price Stability Depends on National Reserves

Prices for bread do not decrease in Georgia irrespective of the price-slump on wheat at the international market. To puzzle out the bread price-making policy sector pundits advise government to create national crop reserves. 

Georgia never follows the international trends when it comes to price slump on important products like fuel, bread, sugar, oil and other essentials. Georgian businessmen and importers diligently comply with the international market trends when prices go up but the cheapening trends make them extremely wary. Prices

on wheat at international markets start dropping gradually since May. However, after Russia officially announced about lifting embargo on its wheat export starting July 1, 2011, prices that stood at USD 380 per ton of wheat dropped to USD 300. Ultimately the price slumped by 20-25% and the trend is believed to go down thanks to heavy crop globe over. After the past year’s failure, Georgian farmers also enjoyed a rich harvest. According to Levan Silagava, Executive Director of Georgian Wheat Association, about 60 hectares of land are under crop in Georgia and this year harvest expectations stands at 3 tons per hectare that makes about 180 thousand tons of local crops available. This makes about 24-25% of entire Georgian consumption – 700 thousand tons per year.

Sector pundits believe price on crop will be dropping down till November of this year when the second sowing is coming and new harvest prognosis and trends are outlined. Silagava presumes that prices on bread are also supposed to reduce following the wheat and flour prices. Bread prices usually drop after a month after the price slump on wheat [flour price drops in two weeks after wheat gets cheaper, and the bread price goes down following the flour by a two-week interval].

Georgian wheat importers managed to import crop for USD 300 per ton in June as far as lift of Russian embargo was announced by 20 days earlier [of July 1st] and market expectations toward the price slump laid ground to this. Commensurately flour prices that stood at GEL 60 per a 50kg sack reduced to GEL 41-42 by today. Actually bread prices were supposed to drop too by July 10 but they still persist. Only couple of bakeries reduced prices by 5 tetri others still maintain 60-80 tetri per lump [depending its weight] while according to fair price-making policy flour makes 40% of bread price and if crop price reduces by 20% bread price is also supposed to have a 10%  drop.

Bakeries say they cannot reduce prices because the price-slump on flour is a temporary trend and they have no reserves.

“If we had 60% of our crop we might keep bread prices stable, but we by 95% depend on import, and who knows that prices will not go up in winter?” Tamaz Imerlishvili, a spokesperson of “Gldani” bakery, said. Imerlishvili doubts that any bakery will reduce prices. “Most probably they will restore the old weight of bread lumps [reduced when prices were up early this year] to respond to true price,” he told Georgian Journal.

“Alali 94” bakery assures it has already cut down prices but supermarkets keep old prices. Supermarkets swear it is bakery that detains old prices. Silagava counters that prices must fall nevertheless as wheat prices are forecasted to go lower than that and in two week he believes wheat will be imported for USD 280-270 that must cut bread prices down. Economic analysts say the increased prices on transport and electricity make bakeries restrain from price-slump so as offset losses when crop prices go up again.

The only way-out to make bread prices stable is to create a national crop reserve as the best world practice shows, Silagava advises. Crop reserves is in hands  of private people not the state and they regulate the market so as to enjoy as high profit as possible. If the state creates its reserve it can curb private people’s appetite.

“It requires big investment initially however it will be commercially profitable for the state on the one hand, on the other hand bread price that is of social issue can be stable as will be regulated by the state,” Silagava said.

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