Will Cheese Prices Continue to Rise?

Will Cheese Prices Continue to Rise?

The FINANCIAL -- In January, the cost of cooking one standard Imeretian khachapuri continued to increase, ranging between 3.56 GEL (Batumi and Tbilisi) and 3.92 GEL (Kutaisi), with the average cost being 3.67 GEL.

The new average price is 1.9% higher than the price in January 2016. As for month-to-month development, the price of khachapuri is 1.3% higher compared to the previous month (December 2016).

Cheese is the main and most expensive component of Georgian khachapuri, driving the sharp seasonal fluctuations of the Khachapuri Index.  The price of cheese shot up sharply in January 2017, after dropping (in annual comparison) from July 2016 (6 month). In previous publications, we discussed some possible reasons behind the cheese price decrease in yearly terms. One of those reasons is the increased amount of imported milk powder being utilized, which kept cheese prices below last year’s levels.   

Therefore, one explanation why cheese prices increased in January compared to last year could be that, starting from September 2016, we observe that the unit price of milk powder has gone up in dollar terms. When importers run out of stock, they have to buy more at the increased price, so perhaps this is why we see the effect now and not in previous months. This effect might be exacerbated by the fact that the lari continued its depreciation against USD. In January 2017, the GEL/USD exchange rate reached 2.7, which is 0.26 points higher compared to the prior year (January 2016). So, in lari terms, milk powder is even more expensive. 

In addition, an increased excise tax rate on oil products led to higher transportation costs. Presumably, all of these factors will keep cheese prices higher than last year’s level.