WHAT’S WRONG WITH KUTAISI?

WHAT’S WRONG WITH KUTAISI?

The FIANNCIAL -- As often discussed on his page, seasonal dynamics of the Khachapuri Index are mainly driven by extremely sharp fluctuates in the supply of fresh milk, which directly affects the prices of traditional dairy products such as Imeretian cheese.

However, these seasonal fluctuations in the price of cheese are consistently sharper in Kutaisi than anywhere else in Georgia. Year after year, we see the price of cheese in Kutaisi exceeding the national maximum in January and falling below the national minimum in June.

A possible explanation has to do with the fact that Kutaisi sits in the heart of a traditional dairy producing region, with a relatively larger portion of cheese and other dairy products supplied by smallholder farmers. While Tbilisi gets a part of its supplies from all-season quasi-industrial farms, Kutaisi receives almost no fresh milk supply in winter, and has too much of it in spring and early summer, when dairy product prices collapse given excess supply and limited cold storage capacity in the region.

What is interesting, however, is that Georgian traders (“speculators”) and processors have not yet learned to take advantage of the existing arbitrage opportunities. Cheese prices would have fluctuated much less (over time and space) had traders invested in refrigerator cars and trucks; and had processors invested in cold storage capacity to stock up Imeruli cheese produced from the relatively abundant and cheap summer milk.