ON DAILY BREAD

A hike in bread prices is a significant event, not just for the individual family budget, but also at state level. The government has long been trying to keep bread prices down in market economy conditions, however, a rise in grain prices on the world market, as well as a poor harvest in Azerbaijan, have minimized the possibility of administrative influence on prices in this area.

Businessmen are already warning that the price of a loaf of bread will inevitably increase by 50 per cent, i.e. from 20 to 30 qapiks. However, the price remains the same, although a sharp reduction in the weight of a loaf can be seen, even with the naked eye. Otherwise, manufacturers say, they will sustain great losses, because baking and selling this product will become an extremely unprofitable business. As a result, businessmen working in this area are threatening to close their businesses, as are many farmers who cultivate wheat. There is another question: whether the government can reduce the social effects of the rise in bread prices and compensate the needy strata of the population in some way.

These issues are highest on the agenda for the economic departments of the Cabinet of Ministers. 

Foreign factor: imports have become expensive

So, first of all, it is necessary to understand the cause of the rise in bread prices. There are a number of foreign factors that will inevitably affect the price of this product. Among them are the natural calamities that have occurred in Europe, Russia and Ukraine. According to forecasts, world grain reserves have shrunk by 112 million tons as a result.

As we know, the main grain suppliers to Azerbaijan are Russia, Ukraine and Kazakhstan. Due to the above-mentioned reasons, grain production in Russia and Ukraine has fallen. The average price of grain in these countries has increased by 60-70 dollars per ton because of the poor harvest. Apart from this, Ukraine has introduced quotas on grain exports. In Kazakhstan, grain production, on the contrary, has increased; however, despite that, its price has increased by 50 per cent. Transit tariffs have increased at the same time. It is quite natural that all this has created certain problems for Azerbaijan, which imports half of the grain it consumes.

Apart from foreign factors, there is a whole range of domestic factors behind the rise. It is expected that this year the grain harvest here will be late and lower than last year. According to the State Statistics Committee of Azerbaijan, the grain harvest in Azerbaijan fell by 23.4 per cent, or 282,200 tons, by the beginning of July. The crops were damaged by unfavourable weather conditions, which caused a fall in the volume of the harvest. We have to say that statistical information shows a gradual fall in grain production in Azerbaijan over the last four years: 2004 - 2.105 million tons, 2005 - 2.077 million tons, 2006 - 2.032 million tons and this year we expect less than 2 million tons of grain.

We should point out that the country's domestic demand for grain is 3 million tons, while we produce only 2-2.5 million tons (domestic production is expected to grow to 2.8 million in 2008). The deficit is covered by grain imports, half of which is earmarked for reserves.

Thus, the rise in grain and bread prices is an inevitable process today, Azar Amiraslanov, deputy chairman of the parliamentary commission for economic policy, said, "We cannot live in isolation from developments in the rest of the world. We have to take account of the interests of bread producers. If the prices of some products are corrected and brought in line with market conditions, bread prices should also adapt to the new conditions. But, at the same time, in view of the hike in bread prices, the government should carry out a social policy of compensation," the MP and economist believes.

Domestic factor: production has become expensive

Of course, compensation is a solution to the problem of the price rise in terms of its affect on needy consumers. However, a number of economic experts say that there are also other ways out of the situation; first of all, stimulation of grain production inside the country.

The fact is that wheat production is extremely unprofitable in Azerbaijan today. This leads to a fall in interest in this type of agriculture and, as a result, if in 2005 the cultivated area was 5,091,000 ha, in 2006 it shrank by 30,000 and totalled 5,061,000 ha.

According to the head of the plant-growing and seed-growing department of the Ministry of Agriculture, Sabir Valiyev, the increase in grain, flour and bread prices is linked to the rise in the price of fuel in January this year. As a result, in comparison with 2006, grain prices doubled. One kilogram of wheat is sold for 24-26 qapiks.

How did this happen? There was a presidential decree to give 50-per-cent compensation to farmers for the new fuel prices!

Yes, there was a decree. But the implementation of its provisions seems to have started too late. Farmers needed money to start the work of sowing and harvesting - they needed cash. It is well known that it is very difficult to get credit from a bank for this purpose and, against the background of rising energy prices, farmers' financial resources were insufficient. For this reason, they needed compensation then, not now when the grain harvest has ended.

Today the only way out of the situation surrounding the soaring price of bread is to remove  the VAT on grain imports to Azerbaijan, Valiyev thinks. He said that individual government agencies are currently discussing the expediency of adopting such a decision. "We think that if grain importers are exempted from the 18.3-per-cent VAT, this will have a positive influence on the settlement of the problem," Valiyev said. But at the same time, the spokesman for the Ministry of Agriculture stressed that if VAT is removed, the state will sustain considerable losses, since the state budget receives 48.5 dollars from every ton of imported grain. "If we multiply this figure up, the scale of losses will become evident," Valiyev stressed (Trend). 

As a preventive measure, the Azerbaijani Ministry of Agriculture is planning to import an additional 100,000 tons of grain from Kazakhstan to the grain terminal in Baku in the near future. The Baku Grain Terminal open joint-stock company is an Azerbaijani-Kazakh joint venture founded by the Azerbaijani company Planeta L and the Kazakh joint-stock company Food Corporation. The terminal is located in the village of Hovsan near a former fish farm. Its construction began in May 2006. The capacity of the terminal is from 500,000 to 800,000 tons of grain per year. The grain is supplied from the Kazakh port of Aktau by sea. The work of the enterprise will not only make it possible to meet the demand for grain in Azerbaijan, but also to export it to Georgia, Turkey and North Africa (Fineko). The terminal also has a mill with a capacity of 150,000 tons of grain per year.

Further, the issue of creating a grain fund in the republic has been raised again. The Ministry of Agriculture has already submitted proposals on this issue to the Cabinet of Ministers. The idea was first proposed by the French company Sofreco in 1995. Then, the World Bank returned to this idea in the process of drawing up a strategy for Azerbaijan's food security. The government rejected the idea then, as it hoped that the issue would be solved by the private sector and also in view of the high expense involved in creating depots for the fund.

A spoonful of honey

Meanwhile, the government is not idle. The Azerbaijani Cabinet of Ministers has said that the authorities are planning measures against people and companies which artificially drive up bread prices. It is expected that a meeting will be held with representatives of the relevant ministries in attendance. The government said that the Ministry of Agriculture is currently checking grain reserves in the country. A decision will be made on the basis of the results of the check.

Commenting on the situation, the Ministry of Economic Development said that the State Anti-Monopoly Service is following the situation on the market closely.

The pricipal consultant of the state standard and quality control department of the State Agency for Standardization, Metrology and Patents, Mansim Babayev, said that during their raids on bakeries, they found that, as well as reducing the weight of bread, they also fail to add iodized salt to the dough and do not have laboratories. He said that, according to standards, it is permitted to produce bread weighing 0.5kg and 1 kg in the country. At the same time, bakeries can reduce the weight of bread by agreement.

We can only hope that even if bread prices soar, quality and weight will meet the necessary standards and that the cumulative effect of the rise in the price of the main food product will not be damaging to the population.