According to the Retail FPI, by the end of February food prices had decreased slightly by 0.01% m/m (that is compared to end of January), and by 2.6% y/y (that is compared to the February 2016). Although overall FPI did not change very much either m/m nor y/y, some foods experienced quite notable changes in prices. Thus cucumber, carrot, and tangerine prices increased by 25.7%, 9.8% and 6.5%, respectively, whereas eggplant, vegetable oil and tomato prices decreased by 41.7%, 5.8% and 5.0%, respectively.
FLUCTUATIONS IN CARROT PRICES
In the last three years, carrot prices have presented quite an interesting trend. In 2015, they were relatively high, then decreased by 40% in 2016, and then increased again by almost 30% in 2017.
Such fluctuations (when price increases and decreases consecutively) might be explained by a concept called cobweb theory, an economic model which explains periodic fluctuations in prices in markets, where decisions about production amounts are made before prices are observed. Agricultural markets fall into this category, because there is a time lag between planting and harvesting. According to this theory, producers' expectations about prices are assumed to be based on their observations of previous prices. The final outcome of the model might be either convergence to the stable equilibrium price and quantity, or divergence leading to even higher fluctuations in the future.
If this theory actually holds in the case of carrots, it means that carrot producers, who once observed high prices in 2015, decided to produce more in 2016 with an expectation of high prices and thus high profits in the next year. However, increased supply in 2016 caused a decrease in prices, which demotivated producers and led to decreased supply in 2017. Shortage of carrots in 2017 led to the high prices again. This trend is exactly in line with cobweb model.
The main drawback of this model is that it assumes that producers are very shortsighted. If this is indeed the case, we hope that Georgian carrot producers learn from their mistakes, and engage in more long-term planning in the future.
Food Price Index Recent Publications
JUNE 2021 | AGRI REVIEW
On 15 June 2021, the National Statistics Office of Georgia published its annual publication for the agricultural sector - Agriculture of Georgia 2020. According to the publication, agriculture, forestry, and fishing comprised 8.4% of GDP in 2020, higher than the 7.2% share in 2019, but in line with the general trend over the last five years (agricultural GDP comprising on average 7-8% of GDP). Agricultural GDP in nominal terms increased by 13% on an annual basis.… Read More
MARCH 2021 | AGRI REVIEW
On 29 December 2020, the parliament of Georgia approved the state budget for 2021, which includes allocations of around 18.3 billion GEL. From which the Ministry of Environmental Protection and Agriculture (MEPA) will receive 451.6 million (2.5% of the total budget allocation). MEPA will direct 10 mln. GEL towards the Environmental Protection and Agriculture Development Program (2.2% of MEPA’s total budget), with around 389.6 mln. (86.3% of MEPA’s total budget) to be allocated to agricultural… Read More
DECEMBER 2020 | AGRI REVIEW
The COVID-19 pandemic raised concerns about the food security of many countries, in particular import-dependent developing countries like Georgia. Trade restrictions imposed by Georgia’s trade partners tightened the supply of some cereals and vegetables, signalling the risk of an increase in food prices. While there is no formal evidence of food insecurity due to the pandemic, given that Georgia is a net importer of wheat the state subsidized wheat imports, and, according to Georgia’s Wheat… Read More
OCTOBER 2020 | AGRI REVIEW
The National Statistics Office of Georgia (GeoStat) recently published its economic review for Quarter II 2020. The publication highlights that agricultural production increased by 4.7% in the second quarter of the year compared to the same period in 2019. Furthermore, agriculture contributed to 10.2% of the country’s total GDP during the same period. In the second quarter of 2020, Foreign Direct Investments (FDI) in agriculture also increased and were almost six times higher than the… Read More
JUNE 2020 | AGRI REVIEW
On 15 June 2020, the National Statistics Office of Georgia published its annual publication for the agricultural sector - Agriculture of Georgia 2019. The publication shows that agriculture, forestry, and fishing comprised 7.2% of the nominal GDP in 2019, slightly lower than the 7.8% share in 2018, but in line with the general trend over the last five years (on average 7-8% of GDP). In nominal terms, the output of agriculture increased by 4% in 2019… Read More
DECEMBER 2019 | AGRI REVIEW
On December 10, the parliament of Georgia approved the state budget for 2020. The budget includes allocations of around 14.4 billion GEL. Out of which, the Ministry of Environmental Protection and Agriculture (MEPA) will receive 353 mln. GEL (2.4% of the total budget allocation). MEPA will direct approximately 293 mln. GEL (2.0% of the total budget allocation) towards agricultural development and 60 mln. GEL (0.4%) will be spent on environmental protection. Compared to 2019, the… Read More
OCTOBER 2019 | AGRI REVIEW
On 30 August 2019, a public hearing to discuss Georgia’s Rural and Agricultural Development Strategy for 2021-2027 was conducted at the Ministry of Environmental Protection and Agriculture (MEPA). The new strategy document represents a roadmap for Georgia’s rural and agricultural development for the next decade. The strategy outlines three major goals to be achieved by 2027: 1. Increasing the competitiveness of agricultural and non-agricultural sectors; 2. Sustainable management of natural resources, preservation of ecosystems, and… Read More
