Low Harvest – High Prices?

The FINANCIAL -- The cost of cooking one standard Imeretian khachapuri in June 2017 averaged 3.34 Gel, which is about 1.5% higher compared to June 2016 (year-on-year), and 1.5% lower compared to the previous month (May 2017).

According to the U.N. Food Agency, food prices increased by 7% compared to last year’s price level. FAO also reports increased cereal prices in June 2017, which is 4.2% above its May level. The main contributor for this increase is wheat. The price of wheat in the Black Sea market was 0.8% higher than in the previous month (May 2017), and 0.5 % higher year-on-year. The biggest increase is observed in U.S. wheat prices (13% compared to the previous month). This price increase is related to supply risk due to adverse weather conditions.

We did not observe this increase in wheat prices from Khachapuri Index data. According to our estimates, the price of flour (high grade) was 2.1% lower compared to the previous month, and 3.1% lower compared to last year’s level (June 2016). Experts in the field state that despite bad weather, the wheat harvest remained unaffected in Georgia, and they do not expect a wheat price increase. However, as long as a large share of wheat is imported in Georgia, the price of wheat might soon follow international prices and increase. If higher prices will remain in international wheat markets, the increased price will be transmitted into the Georgian market. According to ISET-PI’s research, seven months are needed for prices to transmit from international wheat to Georgian flour prices.