Ministry of Economy explained increase in bread price by war in Ukraine, disregarding noticeable decrease in grain prices

Baku/29.08.22/Turan: "The increase in the price for bread and flour in Azerbaijan is the result of the war between the world's main wheat producers - Russia and Ukraine; global economic processes caused by the war risks of procurement; restrictions in the export of food wheat; high demand for this product in the world market," the Ministry of Economy of Azerbaijan said when asked by Turan Agency about reasons for the rising prices for flour and bread in Azerbaijan.

The Ministry points out that the price for bread and flour in Azerbaijan is not regulated by tariffs but based on supply and demand in terms of market economy, as well as on the world price for food wheat. The Ministry refers to the Law "On Entrepreneurial Activity" which provides for free specification of the price for the product by its producer. At the same time, to avoid manipulation of prices in the Azerbaijani market the State Anti-monopoly Service of the Ministry of Economy carries out daily monitoring of more than 20 leading producers of flour.  The monitoring is also performed at commercial facilities in Baku and the regions," the Ministry says in an official letter of the Ministry of Economy.

It follows from the letter of the Ministry of Economy that the bread sold in the country is baked from grain purchased on the world market during Russia's war against Ukraine. However, the Agrarian Research Center of the Ministry of Agriculture previously noted that Azerbaijan has a sufficient reserve of grain, exceeding the needs of flour mills by two times. The agency reported on imports of 1.3 million tons of wheat in 2022, 95% of which is purchased in Russia.

Economist Vahid Magerramov told Turan that the government can easily maintain previous wheat prices in the domestic market by intervening in the grain market through the State Grain Fund specially created for this purpose.

"An average of 135 kilograms of bread per person is produced annually in the country. From this calculation, each consumer will pay a new price of 13 manats 15 gapiks more. Nationwide, for 10 million people this amounts to 135 million manats. The state can compensate this amount from the state budget, and this amount is not onerous for the country. In the last year and a half, Azerbaijan earned AZN 26 bln of additional money just from oil and gas sales.  Why western governments subsidize the increase in bread prices by compensating the population while the Azerbaijani government doesn't do it?

The State Grain Fund should store 750.000 tons of reserve grain. This reserve was created to keep the market price of bread stable by intervening in the market at a time of rising market prices. Why isn't this mechanism used," asks V.Magerramov.

He believes that in terms of state mechanisms to reduce the price for bread, the government allows the cartel collusion of several flour milling companies that are artificially inflating prices for flour by stopping the sale of this product on the market.

"The purpose of these companies is to increase the price for bread. With that end in view, they apply to the Anti-monopoly Commission of the government asking for permission to raise the price for bread and explaining this by the increase in world prices for grain and other products required in the production of bread. At that, the government meets the cartelists halfway. T

Note that the prices for grain, flour and bread in Azerbaijan are not regulated by market mechanisms, so the price for bread in the bakery next to a large mill is not different from those in a bread store a hundred kilometers away from the bakery, although it is clear that the producer must include transportation costs into the final cost of the product," explained economist Maharramov.

It should be noted that on August 19 the wheat flour and bread prices went up in Azerbaijan. In this connection, the state media published a statement on behalf of the large flour mills and bakeries justifying this step.

The upper price limit for a 50-kilogram bag of flour in Baku is set at the level of 40.7 manats. The price for bread, regardless of weight, was raised by 5 gapiks. The retail price for a 500 gram loaf of traditional (round) bread weighing 55 gapiks, a 600 gram loaf of bread weighing 65 gapiks, and a 650 gram loaf of bread - 70 gapiks.

At the time the decision was adopted by the grain cartel, the export prices for Russian wheat with 12.5% protein with delivery in September continue to fall. Thus, according to the "Rusagrotrans" analytical center, during the week they dropped by $18 to $310-315/t FOB. Over the last month, the drop was about 13%. Prices for wheat with 11.5% protein fell by $25. -0-