Food prices skyrocketed due to the pandemic as Government is preparing measures: Retail margins must be tamed

White bread prices will be capped, while the socially vulnerable will receive a free portion of groceries and special shopping vouchers, as confirmed to Vijesti by the Ministry of Economic Development. The International Monetary Fund estimates that global food prices will continue to rise due to the effects of the pandemic.  

By Marija Mirjačić

The Government of Montenegro expected to put a cap on the retail price of white wheat bread, following a proposal of the Ministry of Economic Development (MED).

According to the proposal, the maximum retail price of white wheat bread, weighing between 500 and 600 grams, will be 50 euro cents. As for bread weighing between 300 grams to 400 grams, the maximum price will be 40 euro cents.

Confirming this information, the MED told Vijesti that this “will help stabilize the retail price that has fluctuated significantly in the previous period, all in order to secure consumer confidence in the price of this essential foodstuff.”

The MED says that this is one of the first measures that are expected to lead to a reduction in prices of essential groceries. Regarding the prices of other foods, the Ministry announced they would soon present the conclusions of a comprehensive analysis and propose the adoption of recommendations on possible restrictions on retail margins, “especially because these products are already subject to a reduced VAT rate of seven percent, and owing to the fact that these products are predominantly imported at preferential zero percent rates of duty.”

“We expect retailers to adopt these recommendations and thus show corporate responsibility, all in order to maintain a stable purchasing power of consumers,” the MED said. According to them, market inspections will continuously monitor how these recommendations are followed, which is expected to enable the Ministry to continuously monitor and possibly devise “a different price control mechanism”.

The Government, as confirmed to Vijesti, is also planning to help the most socially vulnerable residents who will receive free cooking oil, special shopping vouchers and various other benefits.

A 2.4 percent rise from June to June

In Montenegrin retail stores, the prices of bread, flour, oil, sugar, meat, eggs, milk have all risen in the previous year. Analysts estimate that this is a consequence of a growing global demand and a declining production of sunflowers, cereals and soybeans, which has been caused by the coronavirus pandemic.

According to the latest official data from Monstat, consumer prices in June 2021 were on average 2.4 percent higher, compared to the same month last year.

“The biggest impact on the monthly inflation rate was made by the rise in prices of accommodation services, fuel and vehicle lubricants, meat, milk, cheese and eggs, catering services, sugar, jam, honey, chocolate and sweets, pharmaceuticals, bread and cereals. Consumer prices were on average 1.2 percent higher in the period between January and June 2021, compared to the same period last year,” Monstat said.

The MED says that at the height of the current rise in food prices at the global level, they are continuously monitoring the situation on the Montenegrin market. It has been found that certain food categories are seeing double-digit and even triple-digit percentage growth compared to the last year.

The rise in prices, as noted by this government department, was influenced by numerous factors that were primarily caused by the coronavirus pandemic, which also brought about an increase in the prices of transport and necessary raw materials.

“With the help of market inspection, the Ministry collects data and analyses retail margins in order to have a comprehensive insight into all factors affecting the formation of prices of essential groceries and ensure stabilization in an effective manner. It should be noted that Montenegro has so far pursued an inadequate development policy, which is why we rely too much on imports, even of those products that can be produced by domestic companies. In that regard, the conclusion of the Ministry is that we must solve the inherited problems of our chronic trade deficit through relevant development policies aimed at strengthening domestic production and export capacities of domestic manufacturers, while respecting the rules of the free market,” the MED pointed out.

Despite the fact that their mechanisms to address market anomalies are limited, this Ministry said it was preparing a number of programmatic solutions, jointly with other departments, by which they will tackle the sudden jump in the prices of essential groceries, with the aim of preventing more severe economic and social consequences.

A group of manufacturers of bakery products said last week that due to significant increases in production costs, bread price rises is are inevitable and require a thorough review of producers’ business policies, as well as better understanding of and support for retailers.

“The average price of the basic type of bread of 37 euro cents including VAT – which is the price at which bakeries sell this foodstuff to retailers – dates from April 2019. In the meantime, there has been a significant increase in the prices of energy products, flour and other raw materials. In retail establishments, the price of this bread is 50 euro cents. It is a fact that unsold bread is returned every day, so bakeries have to sell it at much lower prices or destroy it,” the group said, adding that last year they had a loss of revenues of €11 million due to the lack of tourist demand because of the pandemic, increased prices of raw materials and other inputs that affect production.

The IMF is worried about price increases

In an analysis released late last month, the IMF said that rising food prices around the world were causing public concern. The most recent data, the analysis says, show a moderation in consumer food price inflation, which would only add to the high prices that consumers in many countries already lived through last year.

“Due to various factors, it is probable that the effect would be felt most by consumers in emerging markets and developing economies still wrestling with the effects of the pandemic,” the IMF pointed out.

This international organization said that the rise in consumer food price inflation preceded the coronavirus pandemic, adding that early lockdown measures and supply chain disruptions caused a new jump.

“At the start of the pandemic, food supply chain disruptions, a shift from food services (such as dining out) towards retail grocery, and consumer stockpiling pushed up consumer food price indices in many countries,” the IMF assessed. According to the organization, prices peaked in April 2020, after which the trend was mitigated, “pushing down consumer food inflation in many countries”.

“Producer prices, on the other hand, have recently soared. But it takes at least 6-12 months before consumer prices reflect changes in producer prices,” the IMF explained, adding that transport costs have increased around 2-3 times in the last 12 months, ultimately increasing consumer food inflation.

According to data from the IMF, international food producer prices rose by 47.2 percent from their lowest level in April 2020, reaching a record level in May 2021 ever since 2014. Accordingly, between May last year and the same month this year, soybean and corn prices increased by more than 86 and 111 percent, respectively.

The IMF estimated that consumer food price inflation will rise again in the remainder of 2021, specifying an increase of about 3.2 percentage points this year and 1.75 percentage points next year.

Fidelity Consulting said that the food price index of the Food and Agriculture Organization of the United Nations shows that food was as much as 39.7 percent more expensive in May 2021, compared to the same month last year. This index monitors the monthly movement of international food basket prices.

“In 12 months, oil prices rose the most, by as much as 124 percent, sugar by 57 percent, cereals by 37 percent, dairy products by 28 percent, while meat prices increased the least – only by 10 percent,” Fidelity Consulting said.

This consultancy company house notes that Montenegro, unfortunately, is a country that is extremely dependent on food imports – a devastating fact for which we should especially thank the neoliberal economic model, which was carefully supported and selflessly promoted by the former government.

“It will take at least 10 years of full economic stability to change that model,” Fidelity assessed.

Strategic reserves are necessary

The Chamber of Commerce (PKCG) told Vijesti that the increase in the food price index of the Food and Agriculture Organization of the United Nations was mostly influenced by rises in the prices of commodities such as vegetable oils, sugar and cereals.

“Data published by this organization are encouraging, as they have revealed that in June global food prices fell for the first time after twelve months of consecutive growth, and that this index was 33.9 percent compared to June 2020,” PKCG said.

The increase in prices, the organization says, is a consequence of reduced production activities during the pandemic period, as well as a sharp increase in demand when economic activity picked up again. In addition, the rise in food prices was significantly influenced by the increase in transport costs and prices of energy products.

“Since the prices of essential groceries have risen, the Government of Montenegro should create an assistance package for the socially vulnerable population as a way to protect consumers. In addition, in these situations, there is a possibility of emergency procurement, which is applied in conditions of severe market disruptions. The Chamber of Commerce has repeatedly called for building strategic reserves of basic commodities precisely due to such circumstances,” PKCG said.

The Chamber believes that overcoming price challenges in the long run means continuing the ongoing restructuring of the economy, i.e. investing in the development of sectors offering comparative advantages (primarily sustainable agriculture and food production, energy, tourism, ICT, etc.) and expanding the scope of economic activities.

“One of the possible directions that could help stabilize the domestic prices of a number of groceries is to boost domestic food production. In this regard, it is important to support the increase of competitiveness of businesses and to strengthen export capacities. The other direction is to continue attracting foreign investments and to invest in infrastructure in order to reduce certain key production costs, but also to encourage further development of manufacturing sectors,” PKCG concluded.

Montenegrin Employers Federation: Excise taxes on fuel to be reduced urgently

The Employers Federation told Vijesti that they expect the Government to consider the possibility of reducing its participation in the formation of the price of fuel as soon as possible, i.e. to reduce excise taxes on fuel.

“The increase in fuel prices in the current economic crisis caused by the coronavirus pandemic is a move that leads to further growth in prices of many other products and services (food, imported clothing and footwear, transport services…), especially necessity goods. All this contributes to the worsening of citizens’ standard of living and additionally slows down the process of economic recovery,” the MEF said.

The Federation says that the effects of rising prices of any energy product, especially fuel, bring about an increase in other prices, often to an extent that is even higher than the degree of increase in the price of fuel.

“All this leads to an increase in prices of other products and services, which is an economic necessity that businesses are forced to accept, because otherwise, due to the negative impact of this cost (fuel prices), they will face even greater losses and greater illiquidity. Therefore, this is a forced consequence,” the MEF pointed out.

Fuel prices have risen ten times since the beginning of the year. The last price increase was at the beginning of this week. The price of a litre of fuel is now €1.42 for Euro-super 98, €1.38 for Euro-super 95, €1.21 for Euro-diesel and €1.19 for heating oil.

70 tons of oil to the socially vulnerable

Montenegro’s government has decided to classify 70,000 litres of oil, which was procured at the same time as the imported wheat, as state property and distribute it to the most socially vulnerable population categories, the MED said.

“Along with the social voucher programme, which was previously announced by the Ministry of Finance and Social Welfare, this is another social measure that we have decided to implement properly in order to maintain the stability of purchasing power,” the Ministry said, promising further measures in order to “calm” the market.

“In this way we will ensure the protection of citizens’ standard, and especially that of the most vulnerable population categories, by means of stabilization of essential food prices and other social measures, without acting repressively on the market,” the Ministry said.

As a part of the social voucher project, the Ministry of Finance will distribute vouchers worth 30, 50 and 100 euros, and it will be possible to trade with them in a market that will be selected through a public call.

Bids for providing vouchers for purchasing food products can be submitted by interested companies until 24 July, after which the Ministry of Finance will publish a list of companies that have met the requirements and conclude contracts with selected providers, within three days of the end of the public call.