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The YoY Price Increase For Wheat Flour Reached An All-Time Maximum In July - PMCG

6319edb7d2b73
BM.GE
08.09.22 19:00
361
Research Centre PMCG published a report on the Wheat And Flour Sector In Georgia. According to the document, the YoY price increase for wheat flour reached a period maximum of 36.5% in July 2022. Meanwhile, the YoY price increase for wheat bread peaked in June 2022, reaching 36.3%, followed by a sharp 9.5 pp drop the following month.

The report reads, that after a 17% YoY increase in total wheat imports in Georgia in 2018, wheat imports have been declining at an annual average of 6.5%. However, it must be mentioned that wheat imports dropped sharply (13.3%) in 2021 compared to 2020, which could be explained by the export restrictions imposed by Russia. In the first half of 2022, wheat imports were equal to only USD 16.7 mln, of which 88.1% was attributed to Russia, followed by Kazakhstan with 7.6% of total imports.

On the other hand, wheat flour imports have been fluctuating between USD 3.1 mln and USD 4.8 mln. In 2021, compared to 2020, the exports of wheat flour increased abruptly by 292.7% and reached USD 12.0 mln. In only the first six months of 2022, the wheat flour imports had already exceeded the total imports of 2021 by reaching USD 29.4 mln. Notably, 98.1% of total imports of wheat flour in the first six months of 2022 came from Russia.

It must also be mentioned that in 2021, compared to 2020, the absolute volume of wheat imports from Russia declined significantly by 18.6%. Meanwhile, wheat flour imports showed a drastic increase (YoY 343.6%) in the same year. Therefore, Russian wheat flour imports mostly substituted Russian wheat in response to the barriers imposed on wheat trade by Russia.

An analysis of the sum of imports throughout the last decade shows a similar picture of high dependence on Russia and a high concentration of the import market. Since 2017, Russia has accounted for 91.3% of total wheat imports and 90% of the total wheat flour imports in Georgia.

It is also pertinent to analyze the domestic production of wheat in Georgia and its self-sufficiency. According to the Georgian Business Register, in 2021 the number of registered companies producing wheat showed a 17% increase compared to the previous year and amounted to 83 companies. Of those, none were large companies, and all were small in size. The number of wheat-flour-producing companies also increased by 5% compared to 2020, reaching 132, of which only two companies were large in size, eight were medium, and 121 were small (91.7% of all registered companies).

Since 2017, the production of wheat has, on average, been increasing by 9.5%, showing a rapid jump of 32.7% in 2021, reaching 135 900 tons of produced wheat, which could partially be attributed to the increased number of wheat-producing companies and increased productivity. By regions, in 2021, compared to 2020, wheat production increased sharply in Kvemo Kartli (78%) and Shida Kartli (71%), followed by Kakheti (26%).

The majority of wheat produced in Georgia is produced in Kakheti. In particular, throughout the 2017-2021 period, on average, 79.8% of total wheat was produced in Kakheti, followed by Kvemo Kartli (8.8%) and Shida Kartli (7.0%).

The majority of wheat produced in Georgia is produced in Kakheti. In particular, throughout the 2017-2021 period, on average, 79.8% of total wheat was produced in Kakheti, followed by Kvemo Kartli (8.8%) and Shida Kartli (7.0%). Since 2017, similar to the production level, the sown area has also shown an upward trend, with a considerable YoY increase in 2020 (8.7%) and 2021 (6.5%). Meanwhile, despite the declining average yield per hectare since 2018, the average yield increased significantly by 22.7% in 2021 compared to 2020, hinting at the increased productivity on the part of wheat-producing companies.

Considering Georgia’s lack of import diversification of wheat and wheat flour, high dependence on imports from Russia, lower price of wheat and wheat flour imports from Russia compared to other trade partners due to ease of transportation, and low self-sufficiency of domestic wheat production, it is crucial to overview other major global wheat and wheat flour exporting countries and identify potential trade partners.

According to FAOSTAT, in the case of wheat, the USA and Canada follow Russia as the top exporting countries; however, for logistical reasons, other less globally prolific exporters could be more relevant to Georgia, including Kazakhstan, Romania, Bulgaria, Poland, and Hungary. For wheat flour, Turkey is among the top exporting countries, followed by Kazakhstan, both of which could be appropriate sources for the Georgian market.

The attractiveness of Turkey as a trade partner to stabilize local market conditions is somewhat diminished by the temporary export restrictions imposed in March 2022 on a number of products, including wheat and wheat flour, which remain in place.

On the other hand, positive dynamics can be noticed in the trade relationship between Kazakhstan and Georgia. In particular, an agreement has been reached between Kazakhstan, Azerbaijan, and Georgia regarding rail transportation tariffs within the development of the TransCaspian International Transport Route linking Asia to Europe. In addition, discussions are ongoing regarding tradable products between Kazakhstan and Georgia10. Therefore, Kazakhstan represents a viable alternative source of wheat imports, both by Kazakhstan being the direct importer of wheat to Georgia and Georgia potentially receiving wheat from Kazakhstan due to being the transit country of Kazakh wheat export to Turkey.

Apart from market diversification, according to the Georgian Wheat and Flour Producers Association, to ensure food security, especially during winter, it is critical to replenish the carryover stocks of wheat instead of wheat flour as the expiration period of wheat flour is only a few months, compared to years for wheat.