Grain speculation

The State Service for Antimonopoly Policy and Supervision of the Consumer Market under the Ministry of Economy issued a statement that flour and bread producers who were warned about the "inadmissibility of abuse of the situation".

In order to prevent unjustified changes in the prices of flour and bread, as well as the weight of traditional (round) bread, regular monitoring is carried out, necessary measures are taken to comply with antimonopoly legislation, the state service notes.

However, it is not clear from the message whether bread prices will remain unchanged in the medium term.

Earlier, grain exporters and producers of flour and bread made an appeal to the people about the inevitable increase in bread prices in the range of 0.10-0.15 manats.

In my article yesterday, I pointed out the unreasonableness of the decision to raise prices. To strengthen my arguments, I publish an article dated October 12, 2012. It is as relevant as possible in the light of the fact that the price of grain at that time was $100 higher.

Prices for Bread in Azerbaijan are Speculative

The growth of world prices for grain in late August began to affect the market of bakery products in Azerbaijan. The first symptoms of price increases were noted at the end of August, when in the Bakikhanov settlement (a suburb of Baku), the price for 630 gram of bread has increased by 33%, from 30 to 40 kopecks.

 After the intervention, the previous price was returned, but in early October, random information about raising the price for bread has come from different locations. This time increases were in the range of 15%. The prices and the weight of bread increased in the ratio 33% to 15%. Now 630-gram-bread up increased in weight to 760 grams, and in price from 30 to 40 kopecks. 

However, this time the bread-makers and regulatory authorities are trying   to justify more confidently inevitable price increases amid rising world futures for grain.

According to information received from importers of Russian wheat, it was reported that on October 11, one ton of grain was bought for $ 380 on the border of FOB. Grain is transported to Baku at the rate of $ 15 per ton. Another $ 30 belongs to milling process. In general, one ton of grain  at the price  $425 (380+15+30) or 330 manat  is enough to produce 1308 kg of grain (1 kg of grain - 850 g flour, 1 kg of bread - 650 g of flour, 140 kg of bread - 100 kg of grain.) Production costs of baking make seven cents per a kilo, or 91 AZN for 1308 kg. In general, all the production costs of 1308 kg of bread, which are produced from 1 ton of grain, total AZN 421 (330 +91.) 

If to take into account  that an average of 0.5 kg of bread costs 35 cents, or 1 kg = 70 cents, then it turns out that with one ton of grain, the  producers earn 494 manat (70 cents x 1308 kg = 915 AZN - 421 manat = 494 manat.) 

It turns out that the speculations   in the increase of prices have been caused by the global rise in wheat prices, are groundless. It turns out that person controlling the market of bread, want to compensate losses due to the increase in world grain prices at the expense of consumers, and do not want to lower their windfall. 

It is necessary to note other two sides of the grain issue – import volumes and grain quality. In 2011, the monopoly imported 1.5 million tons of grain. According to statistics, the demand for bakery products in Azerbaijan is measured as 140 kg of bread (100 kg of grain) per person per year. To meet the demand of nine million people, 900,000 tons of grain is required. But it is no secret that the population of Azerbaijan was reduced due to high emigration. It was noted that from 2.5 to 3.5 million people have emigrated. Even if seven million people really live I the country, the need   of grain should be 700,000 tons. Hence, they should import 700,000 tons, and not 1.5 million tons. It is necessary to take into account local production of two million tons of grain, some of which is used for food, and the other is mostly used as fodder for cattle (wheat Class 4 and 5.) 

Even in 2007, a Russian expressed suspicion that Azerbaijan buys excessive amounts for re-export to third countries, such as Iran, Turkey, etc. Now about the quality of the bread.

Most of the imported wheat is cheaper feed grain, and that it is used to make bread in Azerbaijan; in Soviet times they would be seriously punished for it.   To improve the quality of feed flour in Azerbaijan, they added various additives such as yeast, the main component of which is chemical substance "Unofer." They say that it used to be supplied from Turkey, and now it is imported from China. 

Due to these additives, bread and bakery products take the form we see. The use of these additives and poor quality wheat has led to manifold increase in diarrhea and other diseases in Azerbaijan. 

In Azerbaijan the Ministry for Emergency Situations, which controls the strategic grain fund, is responsible for grain safety.  The Fund is designed to store 200 tons of grain, but much more wheat is imported on that line. The official quota this year is set at 500,000 tons. Nearby are the major suppliers - "Absheron-takhil", "Karat", "Fatoglu", "Neon", etc. Almost all of them are flour mills, bakeries, and of course, extreme financial appetite. 

According to recent reports from Russia, the main supplier of wheat to Azerbaijan, the price for the high-quality bread weighing 500 gram costs in Moscow seven rubles and 18 kopecks.