The FINANCIAL - Why do cheese prices fluctuate more in Kutaisi?

Why do cheese prices fluctuate more in Kutaisi?

The FINANCIAL -- In May 2017, the average cost of cooking one standard Imeretian khachapuri declined to 3.14 GEL – a 5.4% decrease month-on-month (compared to April 2017). In annual terms (compared to May 2016), however, the Index gained 8.5%. 

Deflation of the index was caused by the sharp seasonal decline in price of Imeretian cheese, which went down last month by 10.1%. The Khachapuri Index reached its lowest value (2.86 GEL) in Kutaisi. The magnitude of the drop in Kutaisi was 28% from February (top) to May (bottom) 2017.  It is clear from the graph that the Index fluctuates much more in Kutaisi than in other cities in Georgia.

Imereti sees a large seasonal spike in the supply of fresh milk at this time of year, and much of this milk goes into the production of Imeretian cheese. The actual market for cheese is very small in Kutaisi, because many people in Imereti produce cheese at home for their own consumption. People who live in the city have strong ties to villages. Accordingly, the self-sufficiency ratio in Kutaisi is very high in this period, and therefore the home production of cheese goes up, and cheese prices decline on the actual market. In the winter period, per capita consumption is roughly the same but fewer people manage to produce cheese at home, so demand for cheese on the actual market goes up and the price increases. 

The price of cheese in Tbilisi is expected to be less volatile, as the cheese market is large, and presumably very little home production takes place. In our data, we see very small ups and downs of cheese prices in the Tbilisi market compared to Kutaisi.