October 10 2007, 09:04

Are fruits and vegetables to blame for the dramatic inflation growth in Russia and Ukraine?

Are fruits and vegetables to blame for the dramatically increased inflation in Russia and Ukraine? The analysts of "Agrooglyad: Fruits and Vegetables" weekly tried to answer this question. It seems strange, but in general the prices for fruits and vegetables have increased the most sharply exactly in Ukraine which enjoys more favorable conditions for fruit&vegetable production. And, we forecast that Ukraine will purchase carrot, cabbage and possibly other vegetables in Russia in the winter period. As of today, just potato does not go expensive comparing to the previous year as the only product among those which do not belong to fruit group. Although, the prices for potato have not dramatically declined - this product is just 10% cheaper. At the same time, the prices for cabbage increased 73%, for onion - 26%, for carrot - 81%, for champignon - 25%; the prices increased 2.5 times for capsicum and tomato, 2.3 times for cucumber, 70% for table beet, and 2.7 times for eggplant.

The situation is much better in sweet (fruit&berry) group; however, the winter perspectives do not sound too impressive. Water-melon sales season turned out to be very short this year; as of today, water-melons are sold 2.7 times as more expensive than in the previous year. The prices for melon have increased 60% since the previous year. At the same time, the wholesale prices for grape declined 10%, because the production of this berry increased in Ukraine. The retail prices for the imported table grape were also lower than a year ago, as a result. The same trends were observed for peach and other seasonal fruits; their production also increased this season comparing to the poor yield of 2006. Strawberry prices were lower during the harvesting season too, if compared to the previous year.

The prices for apples and pears are 5-10% lower at the present moment than in 2006; however, to the analysts' opinion, the prices for this product will increase quite dynamically starting from December. The prices for bananas continue increasing: this product is 77% more expensive now than at the same period of time past year. The prices for lemons have increased 25%. But, the prices for oranges and tangerines have declined 4-8%.

What is the reason for such a sharp price increase? The answer is simple: there was no sense to expect the further price decline this year after the low prices for vegetables observed in 2006. A year ago many farmers utilized or left on fields cucumbers, carrot, watermelons and other vegetables: nobody was willing to purchase these products even for the prices which covered harvesting expenses. The other factor was extremely hot summer 2007; it affected the yield and the quality of the products. But, Russia is located in the cooler climate, so, to the contrary, weather influence was positive to grow good harvest.

Why do the prices increase for other food products too? To our opinion, the answer to the enigma is bio-fuels, about which the EU and the US politicians feel really enthusiastic. At the first glance, the minimal percentage of bio-diesel and bio-ethanol in the volumes of sold fuels seemed affordable; however, to fulfill these requirements, the producers of the whole world had to supply a considerable part of grain and oil crops, and also sugar to be processed into fuel, which to be further burnt in the combustion engines. Naturally, the consumers were not willing to stop eating meat, bread, sugar and plant oil, the same as they are not willing to give up driving private cars. That's why the demand for grain and oil crops has sharply increased. But, the world does not possess a lot of free lands to rapidly build up the production. That's why the prices for food products are increasing. To our opinion, we should expect for another turn of price growth. The prices will jump up for all products, because grain and oil crops withdraw land from vegetables and other products.

Isn't it ironic - exactly EU and USA take more care than others to exterminate hunger in the world. However, as a result of the artificial solutions regarding bio-fuel, which utilization is economically unfeasible (excluding bio-ethanol which is produced on the basis of cane), these countries have actually made bread, sugar and plant oil too expensive for foodless countries. The hunger problem will only be deteriorated in the Earth.

The influence of the developing bio-fuel production in the world, as well as the influence of other factors on the perspective production and prices of fruits&vegetables in 2008 and in the strategic perspective will be covered in the presentations done by Andriy Yarmak, the Head of "Agrooglyad: Fruits and Vegetables" project during the CIS largest international conferences "Fruits&Vegetable Business of Russia 2007. Wealth of New Opportunities" and "Fruits and Vegetables of Ukraine 2007. Meeting New Leader".