RETAIL FPI | No Cows, No Milk?!

In the first half of February, ISET’s Retail Food Price Index increased by 4.8% y/y (compared to February 2017). On a monthly basis (compared to January 2018), food prices in Tbilisi’s major supermarkets held relatively steady and decreased only slightly by 0.1%. The sharpest bi-weekly price changes were recorded for fruits and vegetables. Prices increased the most for eggplant (38%), garlic (19%), and carrots (8.2%). The largest price drops were observed for tangerines (5%), cucumbers (5%), and coriander (2%).

A CLOSER LOOK AT THE DAIRY MARKET

Dairy prices showed a strong start for the year. As shown in the diagram, in January 2018, prices are higher for all dairy products compared to the same month of 2017: milk (12%), cheese (11%), butter (11%), and matsoni (5%). Given that in winter there is a shortage in milk supply, increased dairy prices in that period can be explained by seasonality. While seasonality is a good explanation for monthly changes, it cannot explain annual changes in prices.

Trade data, on the contrary, can provide some interesting insights. According to the export data, export of live bovine animals increased in 2017 compared to the previous year. Thus, the number of live bovine animals exported in 2017 amounted to 132,799 head, which is 34% higher than the same indicator in 2016. The export of fresh meat in 2017 has also increased significantly, by 22%, compared to the previous year. It might be the case that both heifers and cows are exported, therefore, increased exports of live bovine animals, alongside increased exports of meat, might explain a reduction in the supply of milk and resulting higher dairy prices.

It is worth noting that import data shows a significant 42% increase in milk and milk product imports in January 2018, as compared to January 2017. It appears that Georgian retailers try, although not very successfully, to fill the shortage in milk supply with imported dairy products.