Compared to February of last year, the price of a set of 23 socially important food products has increased by almost 11%. But inflation is only just beginning to pick up. What kind of grocery store price tags should Ukrainians expect?
Most food suppliers to retail chains have announced price increases of 5-25%, / UNIAN
Food prices are rising
Most food suppliers to retail chains have announced price increases of 5-25%, meaning another price hike is expected soon, the ATB chain of stores warned customers. They also cited the reasons for this increase: rising fuel prices, as well as raw materials such as sugar, flour, sunflower oil, and others, writes DS.
This isn't the first report of rising food prices in recent months. Back in December 2020, the State Statistics Service calculated that from November 2019 to November 2020, sugar prices increased by more than a third, to UAH 19,7 per kg, sunflower oil prices by 15,5%, to UAH 40,11 per liter. Among cereals, buckwheat saw the biggest increase during this period, rising by 36,9% to UAH 37,28 per kg. Prices for bread, the main social product, also increased by 5,4-11,6% compared to November 2019.
However, price increases have continued this year: according to monitoring data from the Economic Discussion Club, in February alone, out of a list of 23 socially important products, price increases were observed for 22 items: beets increased in price by 18%, carrots by 16,6%, cabbage by 15,3%, onions by 13,2%, sunflower oil by 8%, potatoes by 6,6%, and sugar by 5,7%. Overall, the price of this set of 23 products has increased by almost 11% compared to February of last year.
Reasons for rising food prices
One of the main reasons for rising food prices in Ukraine is their global rise. "This is a global trend. The sharp rise in food costs has now hit developing countries. Russia, Brazil, Turkey, and Ukraine are all facing the same problem," economic expert Serhiy Fursa wrote on his Facebook page.
According to him, the reason for the price increase is that the US is actively "printing" money, but the inflation is being "exported" to developing countries. Americans are pouring money into stock markets, resulting in a sharp rise in stock prices and raw materials, including agricultural commodities. Therefore, in the last year alone, global wheat prices have risen by 40%, which has consequently pushed up wheat prices in Ukraine, and subsequently, bread prices.
Rising grain prices not only drive up the price of wheat, but also meat and livestock products. For example, the cost of feed accounts for approximately 60% of the price of a chicken egg. And while, as Oleg Penzin, a member of the Economic Discussion Club, explains, the cost of one chicken egg was 1,7 UAH last November, it's now 2,6 UAH, meaning that, taking logistics and trade margins into account, it can no longer cost less than 3,5 UAH.
Added to this is the rise in oil prices – since November of last year, they have increased in price by 62-82%, and by 16% in February alone.
Therefore, if a year ago the price of oil was falling and this contributed to a slowdown in inflation, now it is increasingly pushing it upwards.
The rise in food prices was also fueled by the increase in the minimum wage for Ukrainians, which increased from UAH 5 to UAH 6 in January of this year. This increase triggered a salary revision across the entire wage scale. Consequently, business owners immediately passed on the increased labor costs to product prices, including food. Even the increase in pensions contributed to price increases—Ukrainian pensioners typically don't bank their money, but take it to markets and stores, which encourages retailers to raise prices.
The quarantine also contributed to rising food prices—last year, Ukrainians were "locked in" within their own country, saving around $4 billion on international travel, according to Serhiy Fursa. As a result, hryvnia deposits in Ukrainian banks increased by 25% over the past year, and this money is putting downward pressure on prices, as people, despite all the upheavals, have plenty of cash, and retailers aren't afraid to raise prices.
And, of course, we can't forget the seasonal factor, which greatly influences vegetable prices. In Ukraine, a significant portion of vegetables is still produced by rural households, and industrial storage is not very developed. Consequently, preserving the entire harvest in the fall is problematic, and therefore, prices for borscht-type vegetables traditionally rise in late winter and early spring, with the difference in prices for summer and winter vegetables in Ukraine reaching 100-150%.
Should we expect further increases?
Food prices, particularly vegetable prices, will continue to rise until the new harvest hits the shelves. Lent will also impact vegetable prices, as demand for Lenten foods will increase during this period. And before Easter, eggs (which, incidentally, already skyrocket in price during the winter) will traditionally become more expensive.
As for bread, its prices depend on the cost of grain and the harvest. Despite the recent cold spell, winter crops overwintered well, and as early as April and May, harvest forecasts will be available, and, consequently, bread prices.
Oleksiy Doroshenko, Chairman of the National Economic Development Council, believes that food price increases of the kind seen in previous months will not occur in 2021. While last year's food price increases and consumer inflation occurred in the second half of the year, this year, by contrast, the largest price increases occurred in the first months of the year. This refers to the average increase in food prices; it's clear that some prices could increase by as much as a quarter.
Let us recall that the budget envisages consumer inflation at 7,3%, but we will most likely not meet this figure.
There are levers
However, the authorities can also take a number of measures to curb food price increases. In particular, when Ukraine joined the WTO, it committed to importing 250 tons of sugar. Today, as Oleh Pendzin explained, raw sugar is cheaper than beet sugar, and imports could lower the price of this product.
Furthermore, price increases can be prevented by regulating taxes. Currently, the European Union's VAT on food products is set at 5-7%, while in Ukraine it's 20%. This difference is why sunflower oil is cheaper in Spain than in Ukraine. And while the Verkhovna Rada recently reduced VAT for agricultural raw material producers, there's nothing stopping Ukraine from reducing it for finished food products.
Ukraine also has specialized institutions created to smooth out food price fluctuations. The Agrarian Fund, for example, is tasked with purchasing agricultural products during periods of low prices and selling them during periods of rising prices.
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