Riding the Khachapuri Index Roller Coaster

Riding the Khachapuri Index Roller Coaster

The FINANCIAL -- In May 2016, the average cost of cooking one standard Imeretian khachapuri declined to 3.08 GEL, which is 2.7% lower month-on-month (that is compared to April 2016), but 7% higher year-on-year (compared to May 2015).

The main khachapuri ingredient is Imeretian cheese, and, naturally, its price is the main driver of our Khachapuri Index. Over the years, we have been observing a sharp upward movement in the price of cheese from July till January (see graph), and an equally sharp downward movement from February till June. These seasonal price dynamics are closely tied to the annual production cycle of Georgia’s fledgling dairy industry. The prices of cheese, yoghurts any other products that are based on fresh milk are the exact mirror image of this cycle. They go up when there is little production (in fall and early winter), and down when there is plentiful supply (in spring and early summer).

The driving force behind these ups and downs is rural poverty and technological backwardness. Given the shortage of winter feed, the vast majority of Georgian smallholders prefer to have their cows calve in the three winter months. This is the time when milk production resumes, applying downward pressure on the prices of all dairy products, including cheese. Milk production starts declining in June until cows get dry two-three month before giving birth.

The least-cost production philosophy behind this approach is not necessarily consistent with profit maximization given that winter milk prices are quite a bit higher than in any other season. Yet, the alternative of using artificial insemination so as to spread milk production over the entire year is considered to be expensive and risky, giving us the pleasure of riding the Khachapuri Index roller coaster.