Prices for food in Ukraine, let in free swimming. The Ministry of economic development and trade (MEDT) will soon recommend to the government to recognize the successful results of the pilot project for the abolition of state regulation of prices for food products in force in Ukraine since 1 October 2016 to 1 January 2017, and to introduce it on a permanent basis. Thus, 20-year-old practice of cost containment by limiting trade margins on social products could be cancelled, says “Лига.net”.
As reported in the Ministry, the draft decision on the abolition of state regulation will be soon published on the official website of the Ministry for discussion.
The Cabinet of Ministers has introduced state regulation of prices for socially important food products, 25 Dec 1996 – order No. 1548. For 20 years, the government has repeatedly cancelled the government regulation, tightened, or expanded the list of products, the premium manufacturer and seller which may not exceed 15%.
For socially significant products in Ukraine include wheat flour, bread and bakery products of wheat and rye flour simple recipes, pasta, cereals, rice, beef and pork, poultry meat, chicken meat in the carcass, boiled sausages, milk, butter and sunflower, cheese, eggs, sugar and vegetables. The list of social products are 15 categories of goods for which the government limits the margin in the shops.
A throwback to the past
Ukrainian officials called the norm of the state regulation of prices for products a thing of the past. According to the head of the NBU Council Bohdan Danylyshyn, de jure, decree No. 1548, which established the aforementioned powers have not been repealed. However, de facto, in 2014, it doesn’t work, because in Ukraine a moratorium on business inspections, and also disbanded the state price inspection, which controlled the correctness of prices for goods, due to state regulation. Functions disbanded in 2015 Gostseninspektsii allegedly passed to the state statistics Committee, reports which do not reflect the real price dynamics, says he.
First Deputy Minister of economic development and trade Maxim Nefedov considers that the interference in the pricing of products distorts competition, limits access to the market, provokes a rise in prices and creates opportunities for abuse. Agrees with him and Director General of the Association Ukrainian club of agrarian business Taras Vysotsky. “In 2014, professional associations have advocated the abolition of this decision, because even then it didn’t work, but it enabled the officials to get kickbacks,” he says.
Simple math
According to the press service of the Ministry, a study on the results of the experiment shows that the suspension of state price regulation did not significantly affect the dynamics of prices in the market and consumer moods of Ukrainians.
The Ministry concluded that in the fourth quarter of 2016 with inflation at 5.6% vs 1.4% in 2015, prices for food products grew at a slower rate of 4.5% versus 5.4%. Dynamics of prices for 17 groups of goods, pricing regulation which was suspended, did not differ from 2015. In both cases, in the range of 3-10% prices rose in seven groups of products, more than 10% on five.
The Ministry noted that the highest price growth in the fourth quarter of 2016 recorded in the category of dairy products (10-22%) and eggs (40%). The rise in price of milk, the Ministry explained the seasonal factor and increase in purchase prices for milk. And regarding the price of eggs, the Ministry noted that the December price for them in 2016 was lower than in December 2016 (vs 24,27 20,95 UAH UAH per dozen), that is, prices “recovered after their disastrous fall in the spring and in the middle of the year (up to 9-10 UAH per dozen)” when the Ukrainian export of this production has been restricted due to suspicion of infection with Salmonella that led to the glut in the market.
Also, I assure in the Ministry, according to the analysis of the experiment has no effect on establishing standards of profitability in 2-15% depending on the region and type of product, because the actual profitability of food production is much higher and only officially according to the state statistics service amounted to 4.8% in 2015.
On average, Ukrainians and 57% of all consumer spending is on food
At the same time, according to the state statistics service, in 2014 the consumer price index for food products (December to December of previous year) made up of 124.5%, in 2015 – 140,1% in 2016 – 103,2% (in the past year, the consumer price of bread rose 7.4%, while dairy products rose in price by almost a third).
In January 2017 we also observed a significant increase of prices for socially important kinds of food: bread for the month rose in price by 2%, beef and dairy products – within 5%, vegetables – by 8%, potatoes by 12%. The price increase is not associated with shortages. According to Danylyshyn, the average of the Ukrainians and 57% of all consumer spending is on food, and the population with the lowest per capita incomes on food costs exceed 80% of total expenditures. “The fact is that they are food insecure (according to international criteria food danger comes when 60% of the total expenditure is spent on food. – Ed.)”, he says.
Data: ASTP
Who benefits from a free flight
Despite investigations, the expected effect of the abolition of state regulation of prices in the Ministry publishes. Have not seen calculations of the expected effect and the Association of suppliers of retail chains, says the head of the Association Alexey Doroshenko. “They probably don’t care how it will affect prices,” he notes.
“From such a move will benefit producers. But practically nobody thinks,” – said Doroshenko.
According to the chief analyst at Ukrsotsbank Andrey Prikhodko, the effectiveness of price controls was quite doubtful. “For real price control was necessary to contain the enormous bureaucracy in all regions. In addition, quite a lot of food produced in the informal economy. For example, according to market players, about 60% of the bread produced in the country in a semi-private bakeries that are impossible to control,” he says.
Manufacturers do welcome the intention to abolish the state regulation of prices in the food market. “We unequivocally support the decision of the Ministry of economic development, as determined by resolution prices had not affected and will not affect the market. The state should not interfere in pricing issues,” – said the head of the Association ukrsahar Andriy Dykun.
According to the Vice-President of the Association of milk producers Anna Lavrenyuk, any artificial interference in the market leads to imbalance and negative consequences. “In addition, note that state regulation in the field of dairy products was only drinking milk with 2.5% fat, sour cream with fat content of 15%, cottage cheese fat content 9%, butter fat content of 72%. However, in recent years the range of dairy products has expanded so that almost no dairy product on the shelf does not fit under this ruling,” says Lavrenyuk.
From the abolition of state regulation of prices for food products will benefit not only manufacturers, but also retailers, the head of the Ukrainian trade Association Igor kishko. He adds that competition between retailers is so high that they try to offer the lowest prices. This is confirmed by the co-owner of networks “Tavria-V” and “Space” Boris Muzalev, according to which, the whole scheme of state regulation of prices was corrupt.
“In the long term the price of food at retail will decline as stiff competition will force networks to offer more attractive prices for buyers,” he said.
A course on consumer
There are experts and opponents of the abolition of the price regulation. For example, Bohdan Danylyshyn believes that the repeal regulation now is not the time. “The current socio-economic situation cannot be an argument in favor of the expediency of removing the state from the process of regulation of prices of basic foodstuffs,” he says, adding that can be activated unscrupulous businessmen-speculators.
According to Danylyshyn, the process of the abolition of the administrative regulation of food prices even in a stable environment of development of the country must be accompanied by the introduction of targeted programmes for food support for the most vulnerable segments of the population. About the same mechanism, and said Dykun. “We should learn from the international experience of introduction of social cards, which offer special prices for specific groups of people. The current system in Ukraine limit the volume of allowances to certain categories of products – it’s pure populism, which is beneficial only to politicians during the election campaign. The business will operate at a loss, so no need to translate the problem of state on the shoulders of the business,” he says.
Social practices of food aid exist in many countries regardless of their level of economic development (Brazil, EU, UK, USA).
