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Tuesday, December 10th, 2019

Ministry of Trade and Integration announces mechanisms of preventing growth of prices for socially significant goods

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by November 18, 2019 Market

At the Government session chaired by the prime minister of Kazakhstan, Minister of Trade and Integration Bakhyt Sultanov reported on the prices of socially significant food products.

As Sultanov noted, from the beginning of October to November 12, prices for socially significant food products increased by 1.1%. At the same time, despite the harvest season, there is an approximately 10% increase in prices for a number of goods.

So, buckwheat increased in price by 46.3%, from the beginning of the year by 62.9%; rice by 0.7%, from the beginning of the year by 32.3%; flour by 10.2%, from the beginning of the year by 27.8%.

Price reductions from October to November are observed for the following products: sunflower oil by 0.4%, potatoes 3.4%, carrots 4.5%, onions 5.8%, cabbage 7.7% and sugar by 7.9%.

The highest price increase for socially significant food products since the beginning of the year has been observed in Atyrau (13.5%), Pavlodar (12%) regions, the city of Nur-Sultan (11.8%), Zhambyl and Aktobe (11.4%) regions.

At the same time, thresholds are exceeded by more than 15% in all regions, mainly for vegetables, meat, bread and buckwheat. The largest number of socially significant food products with exceeding thresholds was recorded in the cities of Kyzylorda, Shymkent and Turkistan 6 products, these are vegetables, flour, bread and beef. There are 5 goods in the cities of Almaty, Aktobe, Akmola, North Kazakhstan and Zhambyl regions, the minister informed.

In order to take operational measures to stabilize prices for socially important food products during the off-season and to smooth out possible speculative leaps, back in May 2018, akimats were given the function of regulating prices for socially significant food products. However, as Sultanov noted, today in practice this function is not used by akimats.

Results of Analysis on Cause of Price Increases

First, the main reasons for the price increase are the presence in the food market of a large number of distributors with different trade margins and other inefficient intermediaries, non-compliance with storage conditions, and lack of established delivery channels. As a result, there is a significant increase in the prices of individual goods.

Secondly, export growth. Due to this, prices for imported goods are rising. So, in the current year, buckwheat in the country significantly increased due to a 30% reduction in sown area. In addition, prices in the Russian Federation are also observed, due to the minimum harvest for 5 years.

Rice prices are rising due to increased demand for Kazakhstani rice from Uzbekistan and Turkmenistan. Thus, exports to these countries grew 22 times. In Russia, rice prices increased by 14%, that is, in our currency from 368.5 tg / kg to 420.2 tg / kg.

However, when conducting an analysis of inter-regional deliveries of goods, we were faced with the fact that akimats often do not know what is produced in their regions and where they are imported from, Sultanov noted.

As analysis shows, the correlation for most products is more than 90%. Due to the openness of trade borders within the EAEU, against the background of rising prices in Russia, both prices and export volumes are rising.

At the same time, prices for all food products in Russia are significantly higher than ours, which pushes domestic prices up, the minister emphasized.

Measures Taken to Prevent Growth of Prices for Socially Significant Food Products

As Sultanov noted, the Ministry of Trade and Integration, together with the Ministry of Agriculture and local executive bodies, is carrying out work to contain prices for socially significant food products and gradually eliminate the causes of their growth. In particular, various price containment mechanisms have been developed. The main mechanism for stabilizing prices today is the activity of stabilization funds.

The volume of foodstuffs is only 45 thousand tons, which is less than 3% of the population’s needs in the regions. At the same time, despite the low volume of procurement, 12 out of 17 regions hold 2.7 billion tenge allocated to stabilization funds on deposits in STBs. In fact, this money has been allocated for the maintenance of social food corporations in the regions.

For a full impact on the pricing of socially significant food products, it is necessary to increase the purchase of stabilization funds up to 15-20% of the population’s needs, Sultanov explained.

In addition, Sultanov spoke about alternative mechanisms to contain prices that do not require large budget financing.

Firstly, a negotiable scheme is being implemented soft loans to retail chains with counter obligations for the sale of socially significant food products at a fixed price. This year, the reverse circuit is being implemented in four pilot regions.

So, in Almaty, an agreement was concluded with Magnum LLP for 1.5 billion tenge, but regional rules have not yet been approved, which jeopardizes the work of the akimat to stabilize prices.

In the years Nur-Sultan, Kyzylorda and Kostanay, despite the available budgetary funds, have not yet concluded agreements with retail chains and real work to reduce prices by akimats is not carried out.

To date, 7 regions have not approved regional rules, and therefore they cannot use either a reverse scheme or a simplified mechanism for the work of the Stabilization Funds.

Secondly, given the shortage of storage facilities of a modern format, social food corporations are able to carry out forward procurement of goods.

Given that the main reason for the price increase is resellers, it is important for us to create a modern infrastructure for trade and storage of goods, Sultanov said.

In this regard, the construction of wholesale distribution centers has begun, which will provide services to manufacturers in the storage, packaging, marketing and transportation of food products.

For example, today the construction of a wholesale distribution center in the city of Karaganda is nearing completion. To date, similar objects are being created in Zhambyl, Pavlodar, North Kazakhstan, East Kazakhstan and West Kazakhstan regions, but they must comply with the standards of the ORC of the Karaganda region.

Nov. 16, 2019, we also legislated the concept of a wholesale distribution center and the competence of the Ministry of Trade and Integration to approve the requirements for them. Now we are actively working on new requirements for wholesale distribution centers together with the Ministry of Agriculture and the Asian Development Bank, Sultanov informed.

The opportunity has been created to obtain a loan for the construction of wholesale distribution centers within the framework of the Economics of Simple Things and to receive subsidies within the framework of Business Roadmap 2020.

To increase the investment attractiveness of wholesale distribution centers, the construction of the centersshould be considered an investment priority project.

According to preliminary estimates, the volume of required investments for the construction of a regional distribution center is about 5.8 billion tenge.

Launching Mobile Application

At the end of November 2019, the Price Scanner mobile application will be launched, developed by BTS Digital LLP in pilot mode in Karaganda.

Functionality Price Scanner allows you to see the cost of goods and reviews about their quality in all stores of the city, as well as compare and buy goods at the lowest price. In the future, the Price Scanner mobile application will be launched in other regions.

Source: Prime Minister of the Republic of Kazakhstan

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