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Eggs, bread, sugar are new black caviar: What will happen to food prices in Ukraine?

Author : Iryna Shostak

Source : 112 Ukraine

Over the year, the price of bread increased by 15%, sunflower oil added 61.6% in price, and sugar rose by 71.9%. Ukrainians are horrified to calculate their monthly expenses
10:17, 18 October 2021

Open source

Experts note that the cost of basic foodstuffs by the end of the year will continue to grow by at least another 15%, and some of them will add more than a quarter to the price.

The surges in food prices are the result of the confluence of several important factors at once, due to which the cost of producing a particular product has increased significantly. Accordingly, its cost has also increased. And according to the rules of any marginal business, in order to survive and not go into the red, the manufacturer is forced to raise the cost of his products, laying the cost increase in the final price tag of the product.

For a visual illustration, let's take an ordinary bread. Today the cost of a loaf of bread is approaching the psychological mark of 1 euro. But it is not the manufacturers who are to blame for this, but the suppliers of the components, which in turn are suffering from global trends: global inflation, rising prices for energy resources, raw materials, and so on.

But the final cost of a loaf, among other things, is also influenced by the rise in price of sugar and butter. And these ingredients are also becoming more expensive due to the rise in the price of their components. This list of interconnected chains is endless.

At each stage, the manufactured product is overgrown with a "rise in price" like a snowball. And as a result, for 650 g of bread, the buyer will have to pay not UAH 15 (0.4 USD), but, say, UAH 24 (0.9 USD). This also applies to eggs, vegetable oil, sugar, pork and poultry.

But before moving on to the main points - what and how much will rise in price - it is worth figuring out why all the fuss has flared up.

Spiral of rising prices

The unheard-of food prices are largely to blame for global inflation, caused by covid circumstances: the world food price index rose by 27 percent in a year, one of the most dynamic indicators in 40 years.

But already from the beginning of 2021, when the world economy showed recovery, there was a demand for raw materials (for example, countries were stocking up on grain), energy resources - a global rise in prices began. And since the Ukrainian market is tied to the world food markets (we export about 70% of the harvest and are large producers of agricultural products), the trend has reached our production.

The rise in gas prices is included in the price tag

"Everything related to the raw material component will rise in price, including due to the rise in prices for energy resources," economist Oleksiy Kushch predicts in a commentary on 112ua.tv.

Let's start with blue fuel, the rise in prices for which will lead to higher prices for everything that uses gas in the production. Thus, over the past year, the price of natural gas has increased sevenfold, after which it has dropped again. The cost of electricity has doubled. And, according to the expert, this is not the limit.

Thus, the economist emphasizes that Ukraine has not yet felt all the "charms" of the rise in prices for energy resources - there is a time lag of a month or a month and a half. And Ukrainians will see an even greater surge in prices in November. By the way, then late crops will "suffer": corn, soybeans, sunflowers (gas is needed to dry crops), which will lead to a decrease in the profitability of their production. As a result, commodity producers will be forced to abandon short-term contracts, postponing deliveries in order to partially minimize financial losses.

But some manufacturers are already noticing an increase in the production price of their products. In particular, we are talking about bakeries, pork and sugar producers.

"We are already seeing an increase in the corresponding costs by 25-50% compared to last year. And the industry operators state that they will grow in the future," the Association of pork producers of Ukraine notes in a commentary to 112ua.tv.

According to the head of the board of NASU "Ukrtsukor" Nazar Mikhailovin, the cost of gas per cubic meter compared to last year increased by 5.6 times (from UAH 8 per cubic meter to UAH 45). And in the structure of the cost of sugar, blue fuel is already 60-80%.

Not just gas

The high price of some foodstuffs is caused not only by the rise in gas prices, but also by the rise in prices for derivatives and fertilizers. For example, as noted in the NASU "Ukrtsukor", the price of metal and limestone has increased by 1.5-2 times. And in the Association of pigs and poultry farmers of Ukraine they talk about the rise in prices for fodder crops, which has an even greater impact on production than the rise in prices for blue fuel. At the same time, the new harvest did not bring the desired price reduction.

"For poultry and pig farmers, the price of grain and meal (concentrated feed) has doubled. This means that in the cost structure, this position already occupies 60-70%," says the head of the board of directors of the Association of Poultry Breeders of Ukraine "Olexander Bakumenko.

In addition, other expenses are also growing: veterinary medicine (for industrial pig breeders and poultry farmers), logistics, wages and corresponding deductions.

Bread is not a cheap pleasure

Quality wheat is in short supply today. Reasons: drought in the USA, Russia, as well as an increase in the volume of purchases in post-quarantine times, in particular by Asian and African countries (strategic grain reserves). And when the goods are scarce, the demand, and therefore the price for it, grows by leaps and bounds. This is also stated in the FAO report - among the main cereals, the highest growth was shown by world prices for wheat, almost 4% higher than in the previous month, and by 41% higher than indicators for the corresponding period last year. The rise in energy prices is exacerbating the situation.

What we have: wheat rises in price - one. Gas, with the help of which the grain should be dried in elevators, is becoming more expensive - two. Because of this, grain becomes more expensive - three (as of September, flour mills purchase grain 27% more expensive than last year), and flour already occupies about 40% of the prime cost. The price for butter and sugar is rising - four, and so on.

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"For me, the most influential factor in the rise in price is precisely the price of flour. Because gas fluctuates, it may decrease, but hopes for a decrease in the price of flour in the near future are more illusory," notes Oleksandr Taranenko, First Vice President of the All-Ukrainian Association of Bakers in the comment to 112ua.tv.

According to the expert, bread should rise in price by 15-20% by the end of the year (and in some regions - even by more than 20%). And this despite the fact that over the past year the price of bread has already risen by 15%. According to the State Statistics Service, the cost of agricultural production in Ukraine increased by more than a third over the year.

The current price for 650 g of wheat bread fluctuates around UAH 24 (0.9 USD).

At the same time, Ukrainians may completely lose quality bread, even despite the fact that this year a record amount of wheat was harvested in the entire history of independence (32.8 million tons).

And all because this year the Grain Memorandum did not distribute the volume of food and feed wheat (for feeding livestock). So, out of 10 million tons of wheat exported to date, about 9 million tons are food wheat. Baking bread from low-quality feed grains is problematic.

“We have already faced the fact that the supply of milling wheat on the Ukrainian market has decreased significantly, and the difference between prices for milling and feed wheat is breaking all records. This will lead to the formation of a deficit of food wheat of the 2nd class. 3.5 million tons of 2nd class wheat are needed in order to meet the needs of all industries using flour in the country, we can predict today that starting from January in Ukraine the supply of milling wheat will significantly decrease, "said the head of the Millers of Ukraine Association Rodion Rybchinsky in the commentary to 112ua.tv.

According to experts, the state is not taking any measures to resolve the situation: government procurement or expert fees. Therefore, it is possible that after the New Year in Ukraine there may be a shortage of food wheat and, accordingly, high-quality flour for the tasty and affordable bread.

Ivan Tomich, President of the Association of Farmers and Landowners, in a commentary on 112ua.tv, notes that under the most unfavorable circumstances, by September 2022, we will approach the 35% mark in the price increase for a 650-gram loaf.

By the way, due to the fact that prices for nitrogen fertilizers have also increased, Ukrainian agrarians may reduce their use, which will affect the harvest of 2022 - production volumes and an increase in prices for socially significant food products.

What to expect from pork

According to pig farmers, industrial pig production this year has really risen significantly compared to last year. So, this year the average cost of a kilogram of pork is 20-30% higher than in 2020, so its cultivation for some producers increased in price by 10 UAH / kg, and sometimes more.

 “Usually the second half of autumn is a period of seasonal decline in purchase prices for pork, but this year the dynamics are different. ".

In addition to changes in supply and demand, the price increase was also influenced by the revision of the VAT rate for the purchase of animals. Since August, many pig breeders have been working in a tax gap, because a significant part of feed is purchased with a VAT rate of 14%, and they sell their products at a 20% rate.

Since the fourth quarter of 2020, pork producers have been working in economically unfavorable conditions: efficient ones are on the verge of payback, less successful ones are at a loss.

 

As for the forecasts, the further development of the pork price will depend on several factors, in particular on the price of meal and corn. But already today there is a 7% rise in price over the last month (data from the Financial and Economic Department of the Ministry of Agrarian Policy as of September 17, 2021).

Eggs will become "golden" and poultry will become a delicacy

The volume of egg production in the pandemic in Ukraine has dropped sharply - in two years, more than 30 egg production facilities and more than 9 poultry meat production facilities were closed. So, according to the Association "Union of Poultry Breeders of Ukraine", since the beginning of the year, poultry meat production has decreased by 40 thousand tons, and egg production - by 3 billion pieces (a quarter of the production volume in 2020).

In July-August of this year, Ukraine for the first time since independence imported edible eggs from Belarus. The rise in prices for gas, electricity, and, most importantly, forage crops (by 60%) aggravates the situation. And the bumper crop will also not change this trend.

"We assume that prices for poultry meat and eggs will continue to grow. Considering even the fact that the normative monetary value of the land will double (if such a decision is made), this will entail a certain increase in prices for crop products," the director of the Union of Poultry Breeders of Ukraine Serhiy Karpenko notes.

Is sugar the white gold?

In addition to the rise in prices for energy resources and production materials, the cost of sugar is directly affected by the gross harvest of sugar beet (its cost increased by 31% compared to last year's prices).

All these factors influenced the fact that the cost of sugar for the year increased by 71.9%.

Sunflower oil

In addition to the factors that the person had a hand in, the weather conditions also influenced the rise in prices for certain products. So, due to bad weather, the farmers have suspended the sunflower harvesting campaign. As a result, there was a shortage of oilseeds in the domestic market, and immediately after it prices rose.

The cost of the "borscht set" will grow due to onions

The reduction in the onion sowing area, as well as unfavorable weather conditions, pull up the entire cost of the "borscht set". Thus, according to Ivan Tomich, President of the Association of Farmers and Landowners, the price of onion by the end of the year may increase several times compared to last year's prices. According to the financial and economic department of the Ministry of Agrarian Policy, as of September 17, 2021, the cost of onions increased by 37% over the year.

Also, according to the expert, cabbage, carrots and beets will add 30-45% in total by the New Year. And all because of the fact that small producers (the main "backbone" of the production of "borscht set") reduce the sowing of vegetables, replacing them with more profitable sowing of monocultures: grain and industrial (sunflower, rapeseed, corn, soybeans, grain).

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"It is not profitable to produce goods with a higher level of added value today," says economist Oleksiy Kushch.

Potatoes feel the most imposingly - the harvest was a success and the stock is 20-25% higher than last year.

"There will be no abrupt changes in the price of potatoes before the New Year. But in the spring the situation may change," says Ivan Tomich.

Can food prices be reduced?

Farmers are concentrating on more profitable crops, enterprises for the production of poultry and eggs are closing, pork producers are leaving the market, milk is practically not produced in Ukraine - all this affects not only the country's economy, but also the final consumer. Product prices are rising mercilessly, and the population continues to grow poorer.

“With the opportunities that Ukraine has today, the state creates such economic foundations for the people to be insolvent in purchasing the necessary food products. Agrarian policy should be focused on the pricing policy available to consumers,” says Ivan Tomich.

A high-quality agricultural policy and, in particular, investment in agriculture, can contain a chain reaction.

So, regulating the rise in pork prices, as well as keeping operators in the market, according to pig farmers, could equalize and even reduce the VAT rate along the entire pork value chain - from grain purchases to supermarket shelves.

Olexander Bakumenko, head of the board of directors of the Association of Poultry Breeders of Ukraine, agrees with this.

"Today, the profitability in egg poultry farming is negative, as well as in meat farming (-3-7%). We, food producers, are not in an equal competitive environment. In the EU, USA, Australia, there are reduced VAT rates on food. In neighboring Poland it’s 5%, while in our country - 20%, - says the expert. - This is an advantage, a buffer for price increases - the market capacity increases and the cost of products does not jump so much."

Affordable loans could also help farmers and livestock breeders develop their farms, according to Bakumenko.

"In the West, the cost of a loan for a manufacturer is 1-2%. There is a program in agriculture to compensate the interest rate at the expense of the state, it helps to reduce the cost of loans. It is necessary to increase the volume of compensation so that large economic entities, especially livestock producers who produce food, are given the opportunity today to have such credit resources, "the expert adds.

Also in Ukraine, it is necessary to revise the fiscal and regulatory model, within the framework of which the export of raw materials and the import of finished goods are stimulated today. So, in particular, instead of starting the production of our milk, we import it.

According to economist Oleksiy Kushch, if Ukraine had domestic processing and the production of goods had a high level of added value, then we could minimize the inflationary factor that exists in foreign markets. A striking example is the rise in prices for sunflower oil.

“Due to VAT refunds to exporters, we subsidize the export of this product to foreign markets and, accordingly, a paradox occurs when sunflower oil in Ukraine is more expensive than in a Czech supermarket,” says the economist.

It was also possible to solve the situation with the high cost of food wheat, because Ukraine produces it on average 4-5 times more than is needed for baking bread and all bakery and pasta in the country.

According to Ivan Tomich, President of the Association of Farmers and Landowners, instead of making changes to the legislation, making a sieve out of laws, the government could go the way of the foreign exchange market: when grain was still available, buy it up and fill it in the Agrarian Fund. And when prices would start to rise - to sell grain to processors at a lower price. Then the state would have an influence on the stabilization of prices for flour, and with it - on bakery products and other flour products.

"If such actions were taken last year, then, according to calculations, the bread would be 40% cheaper. And while in the UAE they sell bread to their citizens cheaper than in Ukraine, there is no need to talk about a socially oriented economy," sums up Tomich.

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