REASONS OF PRICES HITTING ON FOOD

Prepared by Natalia Bikashvili

Trend of prices increase on food keeps continuing all over the world, including Georgia. And the causes are different.
One of the first is entire consumption increasing and UN and other organizations provided assistance as in Africa, so in Asia. The most important issue is prices on wheat and grain, determined by several factors. What environment we will come across in 2007, while such sort of negative condition. Everyone knows, that methanol is a bio fuel for vehicles produced from grain. In conjunction with oil prices record high (approaching 80 dollars for barrel), use of methanol as a fuel in U.S. Brazil and North Europe creating more and more important. That is alternative way of oil but demand on grain and especially wheat hits its record levels and wheat prices increase. The trend will be kept continued next year. So, there are two presumable prognoses in Georgia – proportionally prices increase on bread, what mentions quarterly price increasing with 12-15%, or bread quality reduction and the population will not suffer prices climbing up so sharply. In the article you can get the information about the world trends of wheat and sugar and bread standards, to be obligatory followed by our bakers, according to Georgia’s legislation. In general, all these require serious debates and special arrangements providing for inflation regulation for not tensioning already tensioned social condition. So, what will cost sugar and bread, and why?
Price rise on bread – this is the headline of newspapers and news agencies in the recent days. Very unordinary information is focused on. As for instance, Petersburg`s sources spread the information about serious ongoing negotiations concerning bread coupons and compensations establishment for needy population of the city. Flour selling price rose with 20 % from the beginning of July and price of one bread includes 15 Rubles in the north capital. “Round” bread price in Tbilisi includes 0.50 lari, the weigh hovers over 400-500 grams.
But the authority officially rejected the information. Presumably the price rising on bread will keep continue, but the condition is expected to be stabilized for the October and the works concerning reducing of price rising negative results will be provided in several directions. Moscow is not facing price rising condition yet, because having reserves. According to Moscow Food Resources Department, price rising on bread faced at least 0,5% during June 1-25. But the reserves will be enough just for three month period, and wheat will be purchased with new price. The city government makes terms to try its best for the population to be able any amount bread purchasing.
According to experts` pessimistic predictions, most of the regions of the central federal district may come across the same sort of problems. News agencies sustained reporting about 10-15% price rising on bread in Samara, Buryatia, Altay and tens of other regions and its un-final condition. People stand in wheat rows and nearly dry up bread. It` s not amazing, that prices rising on such important product will have a little bit impact on the authority while up –coming elections. But why it goes such way?
The authority officials and several experts have common view concerning “international factors” impact on price rising condition. Prices increase on wheat, natural gas and oil. As Russia` s Agriculture Minister Aleksey Gordeev told, wheat price rising was caused by lots of factors. The first of all, population increases all over the world, what provides wheat price rising on world`s market. While just recent month review, prices face jump up to USD 240 from USD 180 on 1 tones of wheat. According to Grain Union Information – Analytical Department Director Sergey Shakhovets report to Economic Information Agency “Prime-Tass”, prices rose on wheat with 70-80 % from recent summer. What was caused by increased world demand on the product and deceleration of producing. One of the reasons of wheat price rising is its exporting issue. Russia exported 12,1 million tones of wheat recent year. What means enough reserves of wheat in the country for exporting and local consumption, but as it turns out Russia` s reserves are hardly enough. Total volume of produced wheat includes 78 million tones, local demand includes 69 million tones, and the left 9 million tones are exported, what is very small number.
“If we talk about new harvest, we have already collected 13 million tones”, – Gorodeev said, “what is three times more relatively with the recent month. And there is no damage concerning resources. According to Shakhovets 79 million tones of wheat harvest collection is expected this year, so there is no deficit and is not expected in up-coming period, but there are much rather pessimistic prognoses, indeed. Russia`s agro production as a rule “lost a battle against harvest”. Winter with few snow and droughty summer was directed against harvest. June inflation is clear confirmation of that. It faced 1% increase while June, what is much more then 0,3% of the recent month. It` s enough reviewing the prices of capital` s markets and shops, to understand that defilation of “vegetables” is not expected, as it was traditionally.
The future will show changing of current statement and let`s observe the market with attention. According to Shakhovets, wheat is quite enough as for local market as well as for its exporting. The issue faces rather worth condition concerning food wheat, which may turn out really un-enough. As it expected, barley volume is 1,5 tones less then in 2006.
Wheat faces constant price rising during recent years, and “there is no real background for the trend changing”, Shakhovets said. Price rising is depended on lots of factors, and basically on Ukraine`s politics: it severely quotes grain, because of drought, including barley export. It took place recent year what assisted Russia to provide export of its barley on world market. Export policy bearing huge importance, variants of which are under discussion for now. From one side, export forbidding or limiting is one of best methods for cracking down on deficit, and from the other, the results might be very serious – market to be immediately occupied by other. Moreover, such sort of resolution will fail grain export, one of most important for Russia, the expert says. Gorodeev believes, there is no importance of grain export limiting. “It`s natural, there are lots of tools, including export limiting, but grain volume increases in the country and there is no background for limits,” – the Minister told.
While talking about current season, it faces high starting up prices. If one tone wheat price included 3 thousand Rubles a year ago, it`s price faces 6 thousand Rubles this year. The issue concerns to middle quality wheat, prices of other category hover, but the trend remains keeping. Final indicator of rose per cent on wheat will be elucidated in fall, when collecting of 2007 harvest is scheduled.
Bread prices establishment includes following factors: wheat – 20-25%, and left other – power, fuel – lubricating and other prices). Rising prices on all these products will impact on bread price rising. According to estimators, 80 % of price includes total expanses from field to shop. So, there are frequent debated concerning monopolist-mediators reduction, “suffocating villagers”. Many believe, the government should establish limits on bread prices for keeping down profiteers. Is the authority ready to take the advice into consideration? At a time Mr. Gordeev outlined, that the authority is observing ongoing condition of wheat market and to be ready for sharing in, if rising of prices outrun inflation growing rates. The authority is plenipotentiary resolution making and maintain providing of grain intervention on the market. But, incredible is, that inflation level faced 5,7 % at the beginning of the year, but bread prices increased with 4,7%, so there is a reserve. Such sort of interventions keeping continue is expected with “points” following.
So, the conclusion is following: news on wheat prices increase caused prices corrections providing by entrepreneurs. Prices serious rising is presumably not expected especially while elections pre- year. The authority needs no protesting condition. The resolution concerning bread prices should be certainly done by the local authorities. They have two ways –supply bakers with subsidies, what is not profitable, or free from prices. The bakers will face attempt of price rising, but the administration – to reduce. Prices will be climbed on elite sort of bread, and a little bit on social sort of bread, so prices will not be increased on “cut” bread, or prices will be increased very unimportantly. But prices might be importantly increased on new sorts of bread, said S. Shakhovets.

Freeze Devastated Fall Crops: Reducing of Export will Provide Grain Price Rising in Russia and World
Severe freezing may importantly devastate harvest of 2006, and the issue has been already noted at budget incomes statement, by many agro-enterprise companies. According to the Minister of Agriculture of Russia, Aleksey Gordeev, severe freezing will devastate 30 % of crops. It’s increasable, that 40 per cent of autumn crops in Russia includes 40 % of entire harvest. These are such wide spread cultures in Russia as wheat, barley, rye and ect; As the Minister told, covering the devastation damage is just able with summer crops, but it needs complementary finances. “2006 will be too hard concerning grain producing”, Gordeev said and noted that Ministry of Agriculture will report about prognoses in April.
Market experts estimate freeze damages, but no all are pessimistic. For instance, according to Grain Company “Razgulay” Foreign Economy Affairs Deputy General Director Mikhail Potapov, severe freezing in January- February of 2006 devastated 25% of fall crops in south regions. But despite of such number, we can directly report about harvest importantly reducing (70-72 tones instead of 78,1 million tones in 2005)
Of course, “frozen” harvest of 2006 comparing with recent year is not profitable, besides, Russia grain producing faces not bad results in 2005. Common volume of production of every field increased with 2% comparing with 2004. Ten million tones were exported from collected 78 million tones. It` s obvious, the same results can not be reached this year.
Let`s review in details, what could occur with fall crops impacted by severe freeze. Plants damaged immediately when temperature fall 10-20 degrees below zero and there was no snow cover. According to Russian specialists, wheat crops durable while 17 degrees below zero level, but the freeze faced 30 degrees below zero level and lasted for several days.
As it had been already noted, additional summer crops require solid expanses and re-saw needs out of schedule expanse. All these factors may importantly influence on grain price raising in Russian market. Accordingly, experts expect retrial price increase on bread. Of course, bakeries do not react on ongoing events, but wheat price increase started up from beginning of the year.
If in the first decade of January, third level wheat price included 3000 Rubles per one tone, it`s price includes 3500- 3600 Rubles for today. As spring comes, the flour and bread prices jump up. According to many market experts` estimation, grain prices on Russian market outran international indicators, but gain prices may be increased “much faster then inflation” this year.
Specialists believe, Russia has solid producers of grain, able to competitive on the world market. They have capacity of grain export stability keeping, just while today` s negative condition. The export bears huge importance for Russia`s economy, because it` s on of the best tool for grain prices stability keeping interior the country, what accordingly maintains keeping low international prices. Following these, poultry and cattle filed competitiveness increase, as well as milk products competitiveness rising in Russia. Export provides social factor improvement, and positively effects on regions (Krasnodar, Stavropol and Rostov) economic development. Grain export is important not just as an issue of foreign trade. According to last dates of the recent year in several regions of Russia (Belgorod, Lipetsk and Tula) faced solid condition relatively to 1994 -1997. But the condition was the opposite in the other regions, and the experts made reference on grain trade issue among the regions.
Grain export supply reduction is unavoidable in next season. According to M. Potapov estimation, 2006/ 2007 season export will be 10-50% reduced following gross harvest reduction (6-8 million tones instead of 12 million tones in current season). As Russia become main player on grain market, the created condition will provide rising of prices all over the world. International analysts believe the prices will seriously increase, but expect sufferance of Russia`s grain export and accordingly, prices increase just in summer. Sufferance of export negatively effect on Russia`s budget and financial condition, making profits from grain trade. Moreover, prices increasing on local market negatively impact on most economics and will bring the country to growth of process on the other production. Entire price will put every (agriculture, population and generally, Russia`s economy) in negative condition.
Russia needs the government assistance. According to Gordeev, 5 billion Rubles put into the Russia`s budget is too small amount for native agriculture maintain. Recovering from freeze damages and fuel expanses requires at least 10 billion Rubles. Grain purchasing is possible abroad: U.S. Canada, but will cost USD 13 billion for Russia. Moreover, following Russia entered World Trade Organization (WTO) cheap and un- quality imported production will severely impact on Russia` s agro business. So, opposing imported production with the support of local one, bears really huge importance for Russia.
There are several more cultures of strategy importance, besides fall crops, damaged by severe freeze. For instance, rice. According to UN dates, grain harvest 30 % includes rice and its production doubled during recent 30 years period. Rice is the basic outlet while food sufficiency condition. Scientists believe, rice harvest increasing with 3% while up-coming 20 years period is necessary for population not hunger. Rice growing is most spread in Krasnodar. According to Potapov, about 110 hectares of Krasnodar`s area was covered with rice harvest. Rice grow widening and equalizing to 1980-1990 condition (at average covering 147 hectares) is ongoing today. But rice needs special system of irrigating. The couture has capacity of important role playing in Russia`s agrarian enterprise structure, especially while fall crops reducing condition. If durable spaces for Russia`s severe natural condition will be created, we may expect rice in our ration no less then wheat or rye. Despite of strong words of population about grain cultures supporting obligatory form the side of the authority, nothing has been done in real up today, as Potapov noted. Meanwhile grain cultures growing and producing are in highlight of the many country authorities, no matter which culture is that-rye, wheat or rice.
In the case of the case of the support and collaboration strengthening with investors and harmony approaching with the government officials, Russia will gain opportunity cracking down on grain production deficit and Russia will be able new place finding on consumer market, what will be profitable not just for companies, but in general, for Russia`s agrarian production, as well.
World Prices Increase on Sugar
In December of the recent year price increasing on sugar become on of basic trend of agrarian market mad all over the world. For the present moment, experts avoid themselves from any long term prognoses making hoping more clear conditions on market for the beginning of 2006, but they are much more restrained for the moment.
At the end of recent year and beginning of the current year, prices on sugar jumped up. Sugar wholesale prices jumped with 15% up from late December. It mentions, that local traders expecting interior (producer country) prices proposal increasing on world market. Despite of sugar beet producing includes 2,5 million tones, no positive impact is seen concerning hitting prices on sugar.
Raw materials in Georgia are basically purchased for “Agara” factory, producing of which includes 70000 tones and consumption includes 1-3. The following works are refining and treating.

So, what goes in sugar world market?
The world faces chronic deficit during recent years, and includes 1,5-3,0 million tones. The first cause is bad weather conditions and its followed results of poor harvest in Thailand, India, China, Pakistan, and Cuba. Though prices were not increased much then USD 220-230 for meter tones. World prices catalyst on sugar become China, which faced fast economy generation and increased demand on raw material and energy resources, also funds and investing-financial companies having multi-billion financial resources are directed to the most attractive world market investitions.
International Trade Organization resolution negatively impacted on the world market. The resolution concerned to exporting sugar subsidized volume reducing up to 1, 273 tones from 7, 0 tone, up from May 22, what will provide prices increase on sugar while current sugar world deficit — up from USD 220 -240 to USD 400-500.
Oil prices increase provided many countries effectively use energy alternate sources. World marked demand on reed made ethylic alcohol increased. To say exactly, Brazil, which is world leading sugar producer and exporter country, equalization of sugar and reed included 51 and 49 per cents. But just 47,5% of reed was used for sugar producing in Brazil. Up from the second half of the recent year, Brazil faced interior prices increasing on sugar and alcohol, what was caused by reed harvest expected volume reduction with 22 million tones. It could promote 3.0 million tone sugar or 1,8 billion liters of alcohol, hugely important for the world market.
Brazilian authority first of all makes reference on the national economy with the alcohol supplement. The authority provides different arrangements for avoiding internal crisis and makes compromises with alcohol suppliers: despite of 25-25% alcohol share in petroleum, agreement with UNICA concerning alcohol had been reached. But this compromises considered as “no market”, and San-Paulo stock exchange with the announcement, concerning ethylic futures trade interrupting in the case of alcohol internal pieces “freezing”, what will bring negative results to sugar sector development. One of the basic problem of Brazil` s economy present to be Brazil Real strengthening against dollar, what is not able stimulating export operations providing, from the other flip.
While such sort of environment, sugar attractiveness sharply increased, from the view of investition- financial funds, what provided aggressive policy on the stocks NYBOT (New York) and LIFFE (London) and speculation blasting of prices. In May of the recent year price on sugar included USD 185 (8,5 bushels), but in November price jumped up to USD 265 (12 bushels). Traditional speculative increase would be changed with is falling down or prices correction up to USD 220 (10 bushels). But, January 3, 2006 presents new dates of sugar world market: price increased up to USD 330 (14,9 bushels), but the second half of January faces panic condition, created on Friday the 13, when New York prices hit USD 337 (15,35 bushels).
On January 19, the world market suffered another hit of prices –USD 357 (15, 7 bushels), on January 23 –USD 413 (18, 75 bushels). The dates are highest during last25 years period. Unfortunately the environment created earlier, then trader expected.
What we should expect from the current year?
Screen No:1 – optimistic. According to the screen`s content, oil prices fall down up to USD 35-45 for barrel, “tired” Real falls, and India, which scheduled sugar producing restore up 18, 5 million tones, will discover “undetermined exaggerate” of sugar new harvest. As the result, sugar raw material prices will fall up to recent level” USD 180-240 per meter tone.
Determining all the factors that should be a happy ended fairy-tail.
Screen No: 2 – today`s work – day. Market remains to be too volatile; trade diapason includes USD 314-440 (14020 bushels).
Screen No: 3 – market will not be able creaking down on panic environment and prices will climb up with 20 cents…
What we should expect while such environment?
Self-price of while sugar for today includes USD 720, including 250 30 dollars for premium and about 140 dollars for customs taxpaying. Is Georgia`s population ready fro today paying at least USD 200? We believe, it is not. So- called “black and “gray” specialists will not allow proportion increasing of prices in Georgia. White sugar import will be increased and become much more rentable. To say more easy, Georgia will be able financing foreign entrepreneurs, together with native and foreign traders, as well.
May be it is not late yet to care about social-economic results, is market will have capacity of running through every impossible levels of prices?

Bioethanol – The History
Biaethanol fuel produced from ethyl alcohol and used as a patrol. Bioethanol mixing with petroleum and diesel provides work of external combustion motor and requires no modernization. Europeans created motors, working on bioethanol, but differ form ordinary motors and suffering security problems.
E5 – petroleum fuel with 5% bioethanol admixture;
E10 – petroleum fuel with 10% bioethanol admixture (for ordinary motors) – basically used in Brazil and U.S;
B10 – Biodiesel fuel mixed with diesel, used for ordinary diesel motors;
B85 – Biodiesel fuel mixed with diesel or clear biodiesel, might be used in other motors, mainly used in Germany;
B100 – Alternative fuel appeared in Brazil after crises of 1970th, provided 80% of fuel importing what caused huge foreign debts and tax balance deficit. Ethyl alcohol was produced from sugar-cane and used as a fuel. After this the county could reduce its import up to 45% in 19676. They used in U.S. corn grains for bioethanol producing. According to EPIC expert Johan Shredder, the third of sold petroleum in U.S. included ethanol. It was very subsidized field in U.S. and Brazil, but created most profitable after fuel prices hit 30 dollars record.
Perspectives
Price of bioethanol modern factory (in Brazil, U.S. France) includes at average 7 billion dollars, one liter fuel price hovers up to 112 cents from 32 cents, depending the material it is produced from: reed, corn, beet, wheat or other materials, but it`s price will fall down up to 25-55 dollars per one liter. It should be outlined, that 90% includes electricity and grain expanses. In Germany, diesel biofuel is produced from animal and vegetable fat. China and India are among the same way producer countries.
Forth generation biofuel is under producing for today. Fuel is produced from butyl alcohol, which is produced from any remains – as megapolice food remains (vital remains megapolice have capacity of 330 liters fuel producing daily) as well as from grass, including weed. For the material producing BP and DuPont have been united. They are leaders in the issue, and according to their representative Ether Keynes, the fuel might be used with the mixture of petroleum in up –coming future. Through the eyes of experts, on the markets its indicator might approach 30% in the future, because using with mixture of petroleum – 30- 70% and does not require systems, communication and petroleum stations changing for its realization. With the assistance of the company the factory with collaboration of Rishit Shugar has already been built, using sugar producing remains for producing of the fuel.
So, problems created for today` s oil-giants and yesterday` s oil importers will become it` s exporters soon. It will sharply impact on the prices of grain, meat and sugar-facing double increase during the recent years. Georgia has a small chance of 7 billion cost factory constructing, but it might become corn and petroleum strategy producer. Georgia has huge potential of corns producing, but American species driving out and changing of the technologies is very necessary. Producing of sugar beet in Shida (Central) Kartli region was small before, because of non-rentable. For all there issues realization researches and accountings providing in the country are necessary, because that presents to be future energy security and strategic theme of Georgia as well as in aspect of pipe-lines and food inflation.