In May this year, the price of bread went up by 10-20 drams on average.

The press linked this inflation to those candidates in the May 12 Parliamentary Elections who deal in the import of wheat. The connection between the electoral candidates and the inflation has been summed up as follows: “They were using the people's money to cover their campaign expenses.” As a basis for this explanation, the press cited past experience of a sharp increase in prices after the 2003 elections. In reality, there are seasonal price rises in the international market for wheat and this year proved to be no exception. However, our research showed that the price rise inArmeniawas baseless and could have been avoided. Therefore, the connection between the elections and the price hike is not entirely illogical.

Bread Prices Rise by 10-20 Drams

In those shops where the price of bread has remained the same, its weight has decreased. Experienced shopkeepers did not even need scales to confirm that this was true. “The price of bread did not go up in our shop, but the weight decreased sharply. On the other hand, the price of lavash went up dramatically yesterday by 30 drams per kilogram,” said Angela Varosyan, a salesclerk. Studies by the Consumers' Association have shown that the decrease in weight of bread is around 30 percent. “We think that we're buying bread, but in reality 30% of that is just air. Two bread mills were fined 100,000 drams in light of this but nothing changed,” said Consumers' Association president Armen Poghosyan.

 “The price of bread has not changed, but it weighs less now. I used to buy two loaves of bread for my family before and it was enough, but now we're forced to buy three. I feel that the bread weighs less now,” said salesclerk Zina Mikaelyan. “The price went up by 30 drams in our shop. It rose last week – the director of the shop said that price of flour had increased,” said Sofia Bejanyan.

The Statistical Service of Armenia published official information about the price hike of bread products in the end of June. “For bread products, the price in June is more than May by 7.3%, caused mainly by 7.5% inflation for flour, 10.3% for bread and 13.3% for grain” - this was the statement made in the Consumers' Index 2007 January-June bulletin published by the Statistical Service.

Importers Justify Inflation through Global Price Rise

Armeniaimports wheat mainly fromRussia. July issues of Russian publications began stating that wheat prices were rising, when Russian Agriculture Minister Alexei Gordeev announced that the wheat harvest this year was 76 million tons, a 2.4 million ton decrease from last year. As a result, Russian analysts said, wheat prices went up by 10 percent.

A well-known businessman in the Armenian wheat trade, who wished to remain anonymous, said that there had been significant price rises in the international market, especiallyRussia. “Importers currently buy wheat fromRussiaat US $250-260 per ton, while it was cheaper last year. A ton is sold for US $350-360 here. The price rise began abroad,” he noted.

 “When the dram is facing appreciation, the price of any imported items in drams must drop or at least remain stable. Since the dram went up by about 40% here, the price of bread in drams should have dropped by about 40%, but such things don't happen here. A simple calculation could make this clearer. In 2006, importers bought wheat at US $180 per ton and the dollar was worth about 450 drams here. This meant that an importer would spend about 81,000 drams per ton. Today, they spend US $185 per ton where the dollar is worth 338 drams, and the importer ends up spending 62,530 drams. Thus, the appreciation of the dram alone has allowed for any inflation up to about 20% to be compensated. Even if the price of wheat in the international market has gone up, that should have had no effect on the local market. The reason behind this price rise lies elsewhere. There have been no complaints from importers regarding changes in their conditions of import – perhaps their have been changes in their appetite,” said economist Bagrat Asatryan.

The seasonal price rises in the international market are a very lucrative factor for importers. They allow them to raise the price of flour and gain extra profit, all the while citing international prices as justification.

However, in the conditions of the dram's appreciation, one cannot use inflation abroad as a means to justify price hikes withinArmenia.

Importers Make Bumper Profits

“Yes, there have been price rises in previous years as well, but the price of one sack has never gone up by more than 500 drams. This year, the price of one sack went up by 2000 drams. It will go down in August, but I doubt that the price will go back to what it was originally,” said Gevorg Amatuni, director of Bread Factory No. 4.

“It may be possible to calculate the profit that wheat importers are making. If we average out the rise in wheat prices over the past years, consider the appreciation of the dram, the price hike in the local market, consumption volumes and the recent decrease in customs duty, then the extra profit made by wheat importers per month – compared to 2004 – will come to a minimum of 400 million drams,” said Asatryan.

(We should note that the numbers are approximations and underestimates, but that does not undermine the points made.)

Flour Price Rise Unprecedented

The State Commission for the Protection of Economic Competition has not yet studied the reasons and the numbers behind this year's rise in bread prices. However, directors of bread factories have noted that prices had never risen with such rapidity and by this much. Moreover, this is a continuing process.

The Customs Committee, an adjunct body to the Government, refused to provide details about the companies importing wheat and the quantities in which they did so, saying that the information was confidential. The 2006 list of top taxpayers compiled by the State Tax Service included four wheat grain importers – Manana Grain, Mancho Group, FlitFood (MP Samvel Alexanyan) and Yerevan Flour Mill (bought by the Sil Concern from MP Levon Sargsyan in April this year). The VT Trade company also holds an important position in the market. According to a study done by the State Commission for the Protection of Economic Competition in 2005, FlitFood was the largest wheat flour importer by volume (33.1% of the market) while Manana Grain and VT Trade together accounted for 39.1% of the market. However, the volume of wheat imported by Manana Grain, Mancho Group and VT Trade has decreased greatly over the past few years.

“One must also note that most of the phenomena we see in our local market do not have any connection with international trends. It has been said many time, for example, that while the price of energy has gone up internationally, things have remained stable in Armenia and the opposite as well – inflation here when prices drop internationally – has occurred as well. Ours is different which used to be an advertising slogan is, unfortunately, becoming a reality. The reason for this is that economic laws are being replaced by individual needs and those individuals are, unfortunately, seeking greater profits,” said Bagrat Asatryan.

As a rule, the sale and purchase of oil, sugar and wheat in European countries is done in commodity exchanges. The sale of wheat in Armeniain a commodity exchange has occurred only once, in 2001. “Wheat sellers don't find it suitable to sell in commodity exchanges, because their customers are pre-determined – the market has been clearly divided into buyers and sellers. The commodity exchange cannot work as an intermediary in these conditions. One cannot cover up the volume and price of wheat in a commodity exchange, everything is transparent, which is probably not suitable to our wheat sellers,” said Karen Yeghiazaryan, executive director of the Adamand commodity exchange.

Photos by Nelli Shishmanyan