Bread may become more expensive

The price of Ukrainian bread recently increased by nine per­cent. It’s the reaction of the do­mestic bread baking industry to the increase in the price of grain crops, says the head of the supervisory board of the OJSK “Kyiv Bread,” the head of a governmental expert commission on agribusiness issues “Strong Ukraine” Vladyslav At­ro­shenko. “There have been grounds to increase bread prices for two weeks already. Forty percent of the price of bread comes from the grains used in its production. The price of the latter has now grown by 23 percent,” explains the expert.

The increase in the price of bread production is also predicted by other specialists of agribusiness. For example, the director of the Ukrainian Agricultural Business Club Volo­dy­myr Lapa is sure that in three months flour will become even more expensive by at least 15 percent. So, theoretically, according to his estimates, bread prices can increase by seven to ten percent. Though, as Lapa supposes, a lot will depend on the baker’s policy.

However, Ukrainian bakers don’t get that much say in determining bread prices and regulating the industry. According to a resolution of the Cabinet of Ministers of Ukraine from 1996, local government bodies have the right to interfere with, and have the final say on, bread prices. The local governmental bodies, as Atroshenko claims, considerably politicize the bread issue. According to the expert, taking care of the disenfranchised layers of the population, they actually “oppress” the manufacturer by keeping the bread price lower than production costs.

The situation of the last ten years, when bread prices are below costs, or making bakers work for zero profit resulted in a state when the entire sector got into real trouble, said the head of the supervisory board of the OJSC “Kyiv Bread.” In particular, as Atroshenko pointed out, enterprises don’t have a possibility to invest, and employees of bread baking plants get very low salaries working in inhumane and stressful conditions.

Hence, the experts are unanimous: the domestic bread baking industry is in bad need of reforms, particularly in regards to price setting. For example, last week the Union of Bread Baking Industry Enterprises “Ukrkhlibprom” elaborated a number of suggestions and submitted them for the consideration of the Cabinet of Ministers of Ukraine. The document would curtail the role of local governments in price setting. It suggests that they be limited in setting profit ceilings. The ­pro­fitability index for manufacturing social bread, according to the estimates found in the suggestion, should be limited to five percent. It is suggested to shorten the list of social bread types from five items to two, leaving only “Ukrainian bread” and long loaves. In this context, a question about the motivation of this move arises. But is it present in the elaborated document? Regarding the profitability of manufacturing elite sorts of bread, the authors of the document suggest liberating the prices. They say that the market is saturated and that it can set an ­adequate price itself.

Meanwhile, the party “Strong Ukraine” suggests protecting the vulnerable layers of society through purpose-oriented subsidies. “This is a trifle for the state,” persuades Atro­shen­ko. “Let’s suppose that there are ten million vulnerable people in Ukraine. Each of them eats 10 loafs of bread per month. Bread will become ten percent more expensive. Social bread costs three hryvnias today. It’s not difficult to calculate that after the price increase it will cost 3.30 hryvnias. So the state will have to pay only 360 million hryvnias a year.”

However, it’s still unknown whether bread will become more expensive. “Ukrkhlibprom” expects the answer to its initiative no sooner than at the end of August. In the meantime, the elections of local governmental bodies is coming close. And who knows whether they will have the audacity to raise the “bread” issue.