The government cannot give a clear answer to the question about the reason for the rise in food prices

At the plenary session of the Third Eurasian Congress in Sochi (Russia), Prime Minister of the Republic of Azerbaijan Ali Asadov said that the rise in food prices in most countries of the world, including the main trading partners of Azerbaijan, led to an increase in inflationary pressure. Further, as if he had found ways to reduce inflationary pressure, the Prime Minister said in his speech that in February of last year (2022), the Cabinet of Ministers issued an order aimed at minimizing the impact of inflation on business and social well-being of the population. He said: "In 2023, the state budget for food security has increased by 40%. In January-May of this year, agricultural production in Azerbaijan increased by 5.2%."

Six months ago (December 9, 2022), in his speech at the Milli Majlis, Prime Minister Ali Asadov called regional and global geopolitical tensions, the military conflict between Russia and Ukraine and the imposed sanctions the reason for the rise in food prices in the country and around the world, as well as bringing inflation to double digits in the country and the world. in this regard, large-scale economic sanctions, gaps in the global supply chain, high energy prices, as well as rising transportation and logistics costs.

In March of this year, presenting the government's report for 2022 at the plenary session of the Milli Majlis, Prime Minister Ali Asadov said that the average annual inflation in Azerbaijan in 2022 was 13.9%: "In particular, food prices had a serious impact on domestic food inflation due to imports. The annual growth of the price index for imported products exceeded 22%. Inflation in Azerbaijan is mainly imported."

Our research shows that "against the background of threats facing humanity, such as climate change, global warming, disruption of logistics chains, the rise in the cost of production resources and transport tariffs," a number of food products - wheat, vegetable oils and dairy products - have significantly fallen in price in the world. The other day, information published by the Food and Agriculture Organization of the United Nations (FAO) says that in May of this year, the FAO food price index was 2.6% lower than in April, and fell below the record level of March last year by 22.1%. The organization notes that in May the prices of vegetable oils, cereals and dairy products significantly decreased.

The Table 1 compiled on the basis of data published monthly by FAO,  shows a decrease in prices for basic foodstuffs has been recorded worldwide over the past year. So, in June-December 2022 and in January-May 2023, i.e. for 12 months, although wheat has risen slightly in price for 3 months, it has become cheaper for 9 months. The price of meat has been declining for 8 months since July 2022, increased in June last year and in March, April, May this year. World milk prices decreased in June and December last year, and in the remaining 10 months (July-November last year, January-May this year) decreased. And the prices of vegetable oil in the last year, for the remaining 11 months, with the exception of December, decreased. Most of all over the past year there has been an increase in sugar prices.

In Azerbaijan, with the prices of basic foodstuffs, we see a completely different situation. In May-December 2022 and January-April 2023, the consumer price index for basic foodstuffs in Azerbaijan continued to grow compared to previous months, the monthly reports submitted by the State Statistics Committee (SSC.)  Thus, although the consumer price index for bread and flour products, butter and vegetable oils decreased slightly in March and April of this year compared to previous months, it has consistently increased over the previous 10 months.

(Table 2). The Table 2 shows that  prices for meat and meat products, milk and dairy products, granulated sugar, etc. have been steadily growing in the country over the past 12 months.

On the other hand, the SSC in recent years indicates a high level of self-sufficiency of the country with basic foodstuffs (Table 3). The Committee established the level of self-sufficiency of Azerbaijan with flour (of all varieties) at 95%, meat and meat products at 86.4% (including beef and meat products at 91.9%, lamb, goat and meat products at 98.2%, poultry meat and meat products at 79.6%), milk and dairy products at  the level of 84.8% (milk and cream with a fat content of 1 to 6% - 99.0%, milk and cream with a fat content of more than 6% - 90.6%, all kinds of cheeses – 86.3%, yogurt, cream, yogurt, etc. – 93.1%), and sugar at the level of 100.7%.

Of course, the level of the country's provision with basic foodstuffs is not at all the same as the SSC represents, but somewhat different. President Ilham Aliyev, at a meeting dedicated to the results of the first quarter of 2022, said that we provide ourselves with food wheat by only 25%. Azerbaijan, in accordance with the annual rate established by the World Health Organization per capita, is able to meet the demand for meat and meat products by 44.8%, for milk and dairy products by 55%, for raw materials used for the production of vegetable oil by about 10% of raw materials, for raw materials used for the production of sugar is only 5%.

There are two main reasons for the sharp rise in food prices in Azerbaijan. Firstly, Azerbaijan cannot produce food products in volumes sufficient for self-sufficiency.

Due to the lack of local products, there is a shortage of goods, products, and a shortage in the market, which makes it possible for monopolists engaged in the wholesale sale of those products to take advantage of this opportunity. Another reason is the import monopoly in the country. Monopolistic entrepreneurs who take advantage of the shortage of goods and products in the country make a big profit by selling goods imported by them from abroad at a high price. Since Azerbaijan has a monopoly on food imports, prices for many food and agricultural products remain high compared to the countries of the world.

Due to the limited number of local products on the market, there is also a shortage of goods, which allows monopolists engaged in the wholesale sale of these products to take advantage of this opportunity. Another reason is the presence of a monopoly on imports in the country. Monopolistic businessmen who take advantage of the emergence of a shortage of goods and products in the country, selling foreign products imported at low prices for a high price, receive superprofits. Since the import of food products to Azerbaijan is monopolized, prices for many food products and agricultural products remain high in comparison with the countries of the world ([1]).

Speaking in Sochi, the Prime Minister also noted that "work is mainly underway to increase the volume of agricultural production, the system of state support for the agricultural sector is being improved. As a result of the work done, the volume of agricultural production in Azerbaijan increased by 3.4% in 2022. In January-April of this year, agricultural production increased by 3.5%." If in January-April of this year the production of agricultural products increased by 3.5%, including livestock products by 3.5%, then why in January-April the import of meat in physical weight increased by 16.5%, in value terms - by 17.9%, the import of live cattle intended mainly for slaughter, in value terms increased by 43%, milk imports in physical weight increased by 5.1%, and in value terms - by 58.5%?

During a speech at the Milli Majlis, Prime Minister A. Asadov noted that the development of agriculture in Azerbaijan is one of the main priorities of the government, and said that "next year the volume of budget expenditures on food security measures has increased and will be 38.6% more than this year (625.2 million manats). For the measures arising from the Decree of the President of the Republic of Azerbaijan dated July 19, 2022 "On a number of measures to increase the level of self-sufficiency in food wheat", the State Budget for the next year (2023) provides for appropriate funds (180 million manats)."

From the speeches of the Prime Minister, it becomes clear that the government has not yet been able to find out the causes of high food inflation in the country. Since January 2021, the government of Azerbaijan has increased energy prices (diesel fuel by 33.3%, gasoline by 11.1%). The rise in energy prices in the country, in turn, led to an increase in prices for food and other products and services. In fact, the government has given a start to the serious price increase that has occurred in recent years by raising energy prices in 2021.

Our research has shown that, despite the rise in fuel prices, in 2021, by increasing the yield of a number of crops, it was possible to reduce the cost of the products obtained. Thus, in 2021, due to an increase in potato yield by 10 c compared to 2020, the cost of 1 centner of potatoes in individual business farms decreased by 2.3%, and in agricultural enterprises - by 4.4%. A similar situation has developed in the production of vegetables. Since in 2021 the yield of vegetables increased by 2 centner compared to the previous year, the cost of vegetables this year decreased in the farms of individual entrepreneurs by 9.3%, and in agricultural enterprises by 14.3%.

Due to the fact that more diesel fuel is used in the production of grain plants, as a result of an increase in yield in grain production by 1 centner, the cost of production in agricultural enterprises decreased very slightly (0.3%).

However, due to the fact that individual entrepreneurs were unable to organize the effective use of equipment on small plots of land, the increase in diesel fuel prices by 33.3% led to an increase in the cost of grain obtained in the farms of individual entrepreneurs by 6.4%.

One of the ways to optimize food prices and maintain them at an optimal level is to increase labor productivity in agriculture, and the other is to reduce the cost of production. Our research shows that for many years it has been impossible to raise agricultural productivity to the required level. On the other hand, one of the reasons for the high cost of production of agricultural products produced in Azerbaijan is the import of means of production used in agriculture (machinery, technological equipment, seeds, fertilizers, pesticides, etc.). If the government offers diesel fuel used in agriculture (about 310 thousand tons per year) to producers at preferential prices, then farmers, with full compliance with agrotechnical rules, will increase both productivity and receive a high-quality harvest. An increase in productivity, in turn, will lead to a decrease in the cost of the product.

The government of Azerbaijan should not be engaged in stating facts, referring to events taking place in the world. Also, the government should not link the rise in food prices and the rise in inflation in the country to double-digit levels with geopolitical problems. In order to protect the domestic market from unfavorable international market conditions, the government must specifically act and take the necessary measures. The government, which wants to protect the domestic market from unfavorable conditions of the international market, should increase local production.

In order to prevent food inflation and optimize food prices, the Government of Azerbaijan should, along with ensuring the stability of local food production, eliminate its monopoly on imports and on the market.

SUPPLEMENTS

Supplement 1

Table 1. FAO Food Price Index for June-December 2022 and January-May 2023. Source - UN organization FAO

Supplement 2

Table 2. The consumer price index for food products in Azerbaijan for May-December 2022 and January-March 2023 by product groups as a percentage compared to previous months. Source - SSC

Table 3 The level of self-sufficiency in basic foodstuffs, percentage. Source - SSC

[1]https://marja.az/86117/prezident-erzaqliq-bugda-ile-ozumuzu-cemi-25-faiz-temin-edirik