Retail FPI: Food Prices Go Down but What's Wrong with Cucumbers?

The ISET Economist, a blog about economics in Georgia and the South Caucasus by the International School of Economics at TSU (ISET)

Driven by fruits and vegetables, Georgian retail food prices are going down. In the first half of May, ISET’s  Retail Food Price Index lost 2.9% y/y (compared to May 2015) and 1.8% m/m (compared to April 2016). The leaders in prices declines were cheese, greens and coffee: down by 10.2%, 5.1% and 2.7%, respectively. Not all food items lost in value. Banana, garlic and frozen chicken are actually up by 12.5%, 9.9% and 6.0% respectively.

What’s wrong with cucumbers?

While most fresh products are currently trading below their last year’s prices, an 80.5% y/y increase in the price of cucumbers seems really odd. What could possibly go wrong?

The first thing to note is that the price of cucumbers in the FPI basket is constructed as a simple average of local and imported varieties. As can be easily seen, since the beginning of 2016, locally produced cucumbers have been trading well above last year prices (in April, the gap reached more than 1 GEL, or about 50% of last year’s price). During the same period, imported cucumbers (mostly of Turkish origin), traded well below their last year value thanks to Russia’s embargo on Turkish products. A big change came in early May. Last year, the price of imported cucumbers literally crashed (from 3.5GEL at the end of April to less than 1.75GEL/kg in early May). In May 2016, contrary to the seasonal trend, they suddenly increased in price from 2.6GEL to more than 3.5GEL/kg. As a result, imported cucumbers currently trade at more than twice their price in May 2015.

We don’t know the reasons behind such a sharp increase in the price of imported cucumbers. It may have to do weather conditions in Turkey or new barriers to trade. In any case, with the supply of delicious Georgian vegetables steadily increasing in the coming months, we should not be too much concerned about the price of imported veggies. At least not for the time being.