Where are the prices going to halt? Info-Prim Neo Economic Commentary

Later last week, the Parliament’s majority rejected the opposition’s proposal to hear the Government concerning the problem of food prices rise -- already a global problem. The next day, the World Bank Vice President for Europe and Central Asia, Shigeo Katsu, on a trip in Chisinau, told a news conference that, in the long run, the global food price rise will affect Moldova too, since it is a small country and, respectively, has an open economy. That report seemed more as a formality, after they announced that the Cabinet intervened and halted the growth of prices of sugar, pastry, gritted cereals, as the prices of meat were “frozen” till September 2008, while some meat products got cheaper with 4-5 lei/kg. An investigation carried out by the Economy and Trade Ministry on the sugar market brought the prices down to 11-11.25 lei per kilogram, a level from which they had soared in May to 18 lei. The rice price, which is imported, pulled back somewhat following administrative pressure. And the premier’s warning that the Government will severely counteract the undue growth of prices of products of first need discouraged speculators. The cement market calmed down, after exploding in the beginning of the year, rising by 100%. The cement prices dropped from 2,000-2,100 lei/tonne, although they did not reach the level of the beginning of the year when a tonne cost 1,557 lei. “On average the market price remains somewhat higher than the one allowed by the markup," groan the authorities, which would have liked to end the speculation, but put up with also because the imports are operated at higher prices. [“There was a lack of market forecast”] The administrative regulation moves operated by the Government in order ro stop the price growth, especially for food, was a natural response to the speculative growth of prices, experts believe. "The question is about first-need foodstuffs, for which one can establish a maximal limit profit," they say. Amd the Cabinet made use of these mechanisms, restricting the markup. "There is too little competition among wholesalers. There is a profit margin which was increased speculatively. People got scared and started to buy sugar at 15 lei/kilogram, rice at 30 lei/kg, sunflower oil at 35 lei. Thus, the stockpiles were exhausted. But one should prepared for the food prices continuing to rise, regardless of the Government’s will,” this is how the reasons of the growth are explained by Alex Oprunenco, an expert with the independent analytical Center “Expert-Grup". Some economists don’t exclude the price rise was “an anti-competition arrangement” and it was also a good opportunity for the Competition Protection Agency to intervene. Its actions, and the Government’s ones and the ones of other authorities were late, however. They intervened post-factum, when it was already clear the prices went crazy. And if the sugar, rice or pastry got more expensive over the night and, practically, it was difficult to react promptly, the official statistics showed, after 4 months, a 21.6% increase of prices of meat, while compared with April 2007 – by 38.7%. After a month, the hike was 26.5% (within 5 months) and 44.4%. More and more alarming signals used to come from the world rice markets. Under these circumstances, a lack of market prognosis of short and medium terms and of an emergency plan to respond to the crisis generated by food price rise was felt. “in the situation in which, the world institutions are engaged in unprecedented campaign signaling a global-scale food crisis, it is ridiculous to expect the prices will keep stable in a country, which is dependent on the import of a huge number of foodstuffs,” believes Viorel Chivriga, and agriculture expert with IDIS “Viitorul”. What the Government should do in these conditions is to have several scenarios to employ in case of possible crises. Especially after a year of harsh drought, as 2007, and the food processors had almost twice as little raw material than in 2006. “The state agencies should monitor prices, while the Economy Ministry can quickly repair the situation through measures of regulating the domestic market and the relations related to the external trade (taxes, quantity regulations, contingents, quotas of products, etc.) At the same time, the people need to be informed quickly and from the first source about the situation on the market, as the topics related to the food prices on the domestic market should not become politicized,” Viorel Chivriga says. The post-factum actions, which halted the price growth earlier in June, at a certain moment can prove not so efficient. While the strain on the world market is on a rise. [Producers’ interests neglected] The timeliness of the administrative moves took by the Government is not doubted by even its opponents. What it can be accused of is that it neglected the interests of the local producers. As, for example, in the case of “freezing” the food prices. It is clear a price cannot be good both for producers and consumers. The former want bigger prices, the latter – cheaper products. Yet, at the table where this “freeze” and small reduction were decided, after a rise of almost 50 % in a year, it was the case to invite the producers, too, not only the importers, the processors and the big retailers. After the meat got dearer, the producers got a good chance to sell their output well and to make things right. More expensive fertilizers, diesel fuel, fodder severely slashed the farms, financially exhausted after a difficult exam in 2007, when they had to slaughter animals because of food shortage. At that crisis moment, the producers maintained the prices. It’s risking too much to try to maintain the small prices, in the conditions in which Moldova imports much and exports little. “We cannot have much smaller prices than on the external markets, because the producer will try to export its products on markets yielding a bigger price,” says Viorel Chivriga. That is why, one should not gibe up supporting the domestic producers, including though customs taxes. A week and a half ago, the grain producers from 5 Moldovan districts from the Center and South protested in front of the Parliament demanding a procurement price of 4-4,50 lei/kg of wheat. “If good prices are established neither the wholesalers would press us to sell the wheat at 2.30-2.70 lei/kilogram,” asked the farmers who are in a very difficult situation. After the last summer severe drought compromising the harvest, they don’t have money to pay off current expenditures, including for equipment and fuel, and had to conclude contracts with wholesalers already. The state seemingly is set to offer no more than 3.50 lei/kilogram of wheat bought for the state reserve, although nothing has yet been officially established. Also the World Bank Vice President stated that “it is important enough, that the prices go ahead according to possibilities, on the one hand, otherwise other pressures are looming over the economy, and, on the other hand, mechanisms to protect the poorest should be developed and applied.” The World Bank has developed emergency programs, which pursue to respond to a crisis generated by the food price rise and established a fund. The only solution seen by the Chisinau Government is to hold in the prices, as can be judged from the actions it undertook. Meanwhile, Moldova was rated the 14th in a top of the most vulnerable emerging economies to the inflation-related shocks established by the financial evaluator Fitch, in which it included 73 countries. The prices are going ahead and nobody knows when they are going to stop, and Moldova cannot be a paradise in this respect.