Why do bread prices increase in azerbaijan?

Politics Materials 14 May 2008 12:04 (UTC +04:00)

Currently the bread price increase in Azerbaijan is one of the most urgent topics of discussions. Thus, the ban imposed by Kazakhstan on the grain export by autumn has already led to bread price increase in Azerbaijan. In this way, Kazakhstan, the largest grain producer in Central Asia, tried to protect its internal market from the worldwide price increase. However, stopping the export of the Kazakh grain could not so rapidly affect the bread and bakery products in Azerbaijan. There are more reasons affecting the price change, especially rapid inflation growth in 2008 resulted from the growth of the worldwide food price as well as unfavorable conditions for agricultural activities and reduction in harvesting in Azerbaijan. Drop in the USD rate also plays its role as long as most of the products are estimated in USD.

The world grain market changed already at the beginning of the year. Indirectly it resulted from the new forecasts of the US Department of Agriculture regarding grain balance in the current season. Over the past five months, the worldwide grain prices reached record levels several times. As a result, the grain prices in the leading Paris Grain Exchange this year increased up to €265.5 as compared to €187.25 in 2007. For instance, the grain prices in Canada have been oscillating between $128.10 per t in 2006 and $251.20 per t in 2008.

Generally over the recent months, a tendency of grain price increase has been recorded in the world market due growth of demand by the developing countries. In addition, the production for all seasons, excluding 2004/05 was lower than consumption. Beginning from 2006/07 the disbalance between production and consumption reached critical level, and the reserves decreased up to record low level. As a result, the prices at the beginning of 2007/08 season reached the highest level.

Accordingly the grain price increase led to price rise for flour and further for bread. According to the information provided by media sources from various countries, it is possible to say that in I quarter the prices increased in most countries worldwide. In Russia the bread increased by 5.4%, in Ukraine by 6.5%, in Germany by 5-10%, in Spain by 8.1%, in Italy by 7.3%.

Since summer of 2007, the bread prices in Azerbaijan have already increased twice - from AZN 0.20 to AZN 0.30 and last week from AZN 0.30 to AZN 0.40. The cost of 50kg bag of grain was AZN 18 at the beginning of the year, but today - AZN 25. As seen the bread price increase in Azerbaijan take place due to objective processes and under conditions of market economy.

On the other hand, the low level of grain production in Azerbaijan gives a boost to the rise in prices. Today nearly 70% of Azerbaijan's grain demand is covered at the expense of internal; production, said Azerbaijan's Minister of Agriculture. "Today we can not cover the whole internal grain demand," he said. Abbasov stressed that the grain production will be increased by 300-350,000 tons.

Lack of grain and large demand in the market brings to significant price increase. Many of the grain exporters take special measures to ensure own consumption security or impose a ban on grain export like Kazakhstan. In summer Azerbaijan stopped grain import from Russia due to additional €22 per ton of exported grain. Yet the grain import from Russia has not been re-established.

Annual grain demand of Azerbaijan is 3mln tons, with 1mln tons being imported.

Azerbaijan's Ministry of Economic Development states that currently there is enough grain reserves in the Country - more than 570,000 t, which if necessary, may cover demand for a period of five months. The grain harvesting in the Country will begin in June and is forecasted to average 2.3-2.4mln. If sharp deficit will be observed, the Government may begin talks on grain purchase with other countries such as Ukraine and Canada.

According to the forecasts of Canadian Wheat Board (CWB), this year Canada, which is the leading supplier to the world market, will export 3.2mln tons of solid grain. Ukraine plans to supply 2.5mln tons of grain abroad.

Over the recent seven years the grain demand exceeds suggestion and therefore, the worldwide grain reserves gradually decrease. This year the reserves decreased up to 116.6mln tons, the most minimal level over the recent 26 years.

Assessing the consequences of the bread price increase, it is possible to say that not only bread price increased. This year, the prices significantly increased for many foodstuffs, especially meat, milk, vegetable, fruit, etc. The situation may be catalyst for growth of the social tension.

However, there are factors that should weaken the negative impacts of price increase on the living standards of population. They are growth of profits of several families, increase of earnings over the recent period and certain revivals in the economy this year. The nominal revenues of population in Azerbaijan in the first quarter of 2008 totaled AZN 4143.8mln, an increase of 33.1% as compared to the same period of 2007. Over the reported period, the nominal revenues per capita made up AZN 486.3mln or 31.6% up from the last year.

In I quarter of 2008 the salaries increased in various sectors of economy and as a result of January to March 2008 the average salaries in Azerbaijan totaled AZN 229.8, an increase of AZN 26.5 from the same period of 2007.

In addition, the Cabinet of Ministers of Azerbaijan approved of the state program on financing of the social protection of unemployed persons in 2008. The state program stipulates for key directions in the activities of the employment organizations at the Labour and Social Protection Ministry.

However, the main factor is the decision of the Government of Azerbaijan to expand amount of agricultural subsidies in order to stimulate ensure food security. According to the initial version, additionally AZN 40 ($48.5) will be paid to the producers per each ha, Abbasov said. "Generally the grain producers will receive AZN 80 ($97) per each ha of grain sowing area," the Minister said.