The FINANCIAL — As reported last month, Kh-index bottomed out in June, and started on the upward swing of its 6-month seasonal cycle. The upward trend continued in August 2011.
The Tbilisi prices of all Khachapuri ingredients that are subject to seasonal fluctuations rose again: the price of butter added 14%, milk and flour prices gained 8-9% and, most significantly, the price of cheese increased by 26%. As a result, the Tbilisi price of cooking one standard Imeretian Khachapuri increased by 16.2%, compared with July.
The August price of Khachapuri is only slightly lower (by 4%) than the absolute maximum recorded in January 2011, and we expect Kh-Index to continue to climb for five more months! According to our August survey, the price of Khachapuri was in the 2.9-3.7 GEL range; the average price was 3.3 GEL.
The year-on-year increase in Kh-Index was 27%: in August 2010 one could cook a Khachapuri for just 2.6 GEL! This is a quite a bit higher than the 8.5% estimate of the year-on-year CPI inflation for the period of July 2010-July 2011.
Economics Lesson of the week: better coordination, planning and veterinary controls can help reduce the risks in Georgian agriculture
We tried to explore the question of whether last month’s sharp increase in the price of milk and other dairy products (in particular, cheese: by 26%) is a result of an adverse supply shock or increased demand. It appears that both effects combined in August to produce a price hike of such a large magnitude.
August is a month in which Georgia receives the largest number of tourists from abroad, adding to the demand for local culinary specialties such as Khachapuri. The year-on-year hike in Kh-Index (27%) suggests that incoming tourism has significantly increased compared to August of last year. Tbilisi has been certainly affected by this wave of tourism. The impact of tourism may have been even stronger in Georgia’s other major touristic destinations such as Adjara (Batumi), Imereti (Kutaisi) and Kakheti (Telavi). Our prediction is that Batumi has experienced the highest increase in Kh-Index since it is receiving very large numbers of both Georgian and international tourists.
On the supply side, the story is much less cheerful. Due to a lack of coordination among small Georgian farmers and in the absence of proper planning, dairy products that have a long shelf life such as cheese are not ” saved” for the high season. Given that milk production peaks in April and May, too much cheese is brought to the market in May and June. As a result, cheese prices are “too low” at this time of the year and “too high” in July and August. In many countries around the world, small farmers are forming cooperatives that are helping to plan production, reduce costs and smoothen the seasonal fluctuations in the price of agricultural goods. This is not yet happening in Georgia.
Georgian agriculture is also excessively vulnerable to other risks, such as deceases and weather. Anybody driving on the Georgian roads knows today’s reality: in the summer, cows are left to their own devices, walking (or lying) around and freely passing deceases onto each other. Anthrax and the foot-and-mouth decease epidemics may be more difficult to prevent during the summer months. Both have the potential to severely affect the cow population and the production of milk (and dairy products).
The fluctuations in the supply (and price of) dairy products in Georgia may be further exacerbated during the summer months because of dependence on weather conditions. Georgian farmers are not feeding their cows in the summer, letting them to fend for themselves. This year, the scorching heat recorded in July and the early August has withered pastures, leaving dairy cows without sufficient nutrition and shrinking milk production by as much as 50%.
While weather risks and deceases cannot be completely avoided, better coordination and cooperation among small individual farmers is an essential condition for a gradual transition to industrial dairy farming that is more immune to such risks.
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