In August Prime Minister Mykola Azarov declared that the Cabinet would not allow any price rise for food in Ukraine. The head of the government confirmed that this year yield was less than last year, but it would not influence the food price policy. According to the PM, "this time we have half as much grain as necessary for the inner market. In addition, we have sufficient reserves: 1.5 million tons in the Agrarian Fund and 0.5 million ton in the Reserve Fund. In total, this is one third of annual country's need. So what is the necessity to increase prices? We won't allow it. The prices for principal products - bread, meat, milk and butter - will be stable."

Azarov underlined that unlike in 2003-2010 years when bad weather conditions caused poorer yields than usual, this year the country has sufficient carry-over stocks of grain in the amount of 12 million tons, which enables to conduct stable price policy.

In general, some experts believe the food prices will rise, while others disagree. ForUm decided to investigate into the issue to clarify the situation.

Tendency to price drop

Analysts confirm that this year the inner market will have enough wheat and other cultures. The yield-2012 is of high quality: 70-80% of wheat is of high class, which means there are no grounds for price rise. However, Serhiy Kvasha, head of the Agrarian Ministry department on economic development and agrarian market notes that there is certain food price rise at the world market, though it does not have much influence on Ukraine for the moment.

Specialists believe that if the price rise does happen, it will be insignificant. Economist of the Institute of economic researches Oleh Niviekovski notes: "Price rise by several kopeks will not hit anyone's pocket. Moreover, for low-income layers of population we can introduce additional subsidies." In his turn, deputy head of the Agrarian Ministry department on economic development and agrarian market Serhiy Petrenko states that the food prices in our country trend to gradual drop. According to the official, the cost of the consumer goods basket has reduced by 3.3% for last month and by 10% since the year beginning.

However, figures regarding separate products are not so clear. Thus, according to the State statistics, prices for animal production have increased by 19% since the year beginning. Niviekovski, however, refers this price rise not to the price tendencies as they are, but to high prime costs and poor development of domestic animal breeding. "Besides, active investments into the development of livestock force breeders to include investment component into the price," the expert explains.

On the other hand, prices for fruits and vegetables keep dropping. "APK-Inform: fruits and vegetables" project manager Andriy Yarmak reports that the prices for year-round and seasonal vegetables, including potato, stay low. Comparing to 2011, the prices for potato and onion have dropped twofold, for cucumbers - by 20%, for tomatoes, beets and carrots - by 15%. Prices for fruit remain the same as last year, but may drop as well.

Autumn situation

So, what will happen with prices before yearend? Analysts agree that low prices for food may remain for the next several months and start rising traditionally before the New Year.

"Grain Ukraine" company chair Bohdan Tymkiv assumes that within the next months the agrarians will be actively refilling the meat market, thus the prices will grow really slowly if at all. "The main consumer goods basket will stay at the same price level and within the official inflation. Sugar price will definitely remain stable." In his turn, Kvasha adds that sufficient amount of carry-over grain and state reserves will keep the bread prices from growing at least till the yearend.

Maria Kolesnik, head of the analytics department of the consulting agency AAA, agrees that the government has enough mechanisms to keep the prices within the existing frame. "The Agrarian Fund, for example, bought grain at the price of 2011 (1600-1800 UAH per ton), thus the world price rise will not affect Ukraine badly," the specialist says. As for meat, price rise for pork makes consumers to switch to poultry and meat processing plants to import cheaper raw materials. Under such conditions, domestic pig breeders are forced to reduce prices. The only product, which may grow in price, is milk and dairy. This always happens in autumn period due to low seasonal milk yield. "However, the milk price is still lower than in 2011," Kolesnik specifies. 

"Thanks to the production of the latest harvest coming forward the prices for horticultural group of products will keep dropping even during autumn. In its turn, the Cabinet will be able to keep prices for sunflower oil down, encouraging producers to work harder on foreign markets and to take less profit on the domestic one. "Domestic producers have already agreed with such arrangement of priorities. Moreover, stable rate of hryvnia performs as additional stabilizer of the price policy," the expert says.

Speaking on ForUm's own behalf, we want to add that the scheme of arrangement of profitability priorities (low prices at domestic market and high profitability of export) can be realized by the state at the grain sector as well. The Cabinet promised not to introduce quotas for grain export in 2012, and with such mutually beneficial scheme it won't be necessary. At the same time, the 'differential' approach will enable operators to earn maximum and the government to keep prices for consumer goods basket down.

Andriy Boyarunets


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