In February, the average cost of cooking one standard Imeretian Khachapuri fell to 3.29GEL, which is 3.4% lower month-on-month (compared to January 2015), and 4.8% lower year-on-year (compared to February 2014).
The main ingredient of Khachapuri is Imeretian cheese, and, naturally, its price is the main driver of ISET’s Khachapuri Index. Over the years, we have been observing a sharp upward movement in the price of cheese from July till January, and an equally sharp downward movement from February till June.
These seasonal price dynamics are closely tied to the annual production cycle of the Georgian dairy industry. The price of milk is the exact mirror of image of this production cycle. It goes up when there is little production, and goes down when there is plentiful supply.
The driving force behind these ups and downs is technological backwardness. In the absence of artificial insemination, the vast majority of Georgian cows calve at roughly the same period, in the three winter months. This is the time when milk production resumes, applying downward pressure on the prices of all dairy products, including cheese. After peaking in spring, by July milk production starts declining until cows get dry two-three month before giving birth.
2014/15 seems to break away from this traditional roller coaster dynamic. As shown in the chart, the fluctuations in the price of cheese that we observe this year are much less pronounced than in 2013/14. The price of cheese did spike in December, reflecting a one-time sharp increase in demand just prior to the New Year holiday season. Other than that, however, the price of Imeretian cheese stayed quite flat ever since September 2014, in the 7-7.30GEL/kg band. Likewise, the price of cheese did not decline as much in the March-June 2014 period.
What’s going on? One possibility is that improved farmers’ awareness about the advantages of producing (more expensive) winter milk has finally led to the introduction of artificial insemination, smoothening milk production over the four seasons. Another (complementary) explanation is entry by industrial cheese factories or intermediaries that have the ability to store large quantities of cheese and supply the market in fall and winter time, when supply traditionally falls short of demand. In fact, improved storage would explain both higher summer prices and lower winter prices, consistently with our data.
If this is true, the story told by the Khachapuri Index is one of infrastructure improvement and technological upgrading. A story of modernization, in short.
Comments
The seasonality of Georgian dairy herd calving has not so much to do with artificial insemination. One can manipulate calving seasonality with either natural or artificial mating, and both have their managerial challenges.
Concentrated seasonality of calving is sometimes related to graziers deliberately restricting contact between bulls and females to concentrate calving in a specific period (which is the case for better managed naturally mated herds). For transhumescent graziers, they wish calves (or lambs) to be big enough to walk from the lowlands to mountain pastures in the spring and they may manage their herds' mating seasons accordingly. This doesn't necessarily coincide with matching milk supply to the highest demand period but it reduces calf and lamb mortality from exhaustion during spring migrations. The greatest milk supply from a cow is within the first two months after calving.
In less well-managed herds, winter-concentrated calving can be seen because cattle are nutritionally deprived over winter months after a long diet of nothing but corn stalks and rocks, and due to malnutrition they don't start to ovulate properly until the spring flush of new pasture in spring. Hence comparatively more calves born 9-11 months after the spring break. Many Georgian cows calve only twice in three years (compared to every 365 days in a properly managed herd) due to poor nutrition, infections such as brucellosis causing abortions, and poor mating management, so calving can be scattered throughout the year.
The low supply of milk in winter has more to do with stone-age nutritional management of cattle over winter, fed poor material that could not even maintain bodyweight on a non-lactating animal let alone a milking cow, than seasonality of conception. Feed a lactating cow garbage and you will notice the result immediately in the milk bucket.
Past aid projects teaching small-scale graziers to make quality hay, pasture silage, silage from wastes like apple pomace, and even production of lick blocks to supplement low quality forage fed over winter, have not been very successful in Georgia. A current SDC-funded project is trying to introduce low-tech hydroponic barley forage systems, so that even landless graziers can maintain high nutritional standards in their very small herds year-round and keep them confined rather than having to march up and down the mountainside all day. It remains to be seen how this technology will be adopted and what impact on milk supply it will have.
For cheese, modern European packaging lines allow for a 6 month shelf life on semi-soft cheeses such as Sulguni and longer for hard cheeses, so seasonality of milk supply has more impact on fresh liquid milk and yoghurt availability than it does on cheeses, given that proper routines are carried out on the production line.
Simon, who am I to argue with a veterinary doctor :-)
What I think we can learn from flatter cheese price dynamics is that something good is happening related to:
-- herd management (not all Georgian cows have to migrate long distance to the highlands, and so some optimization -- to stabilize annual milk production and capture higher winter prices -- should be possible),
-- winter feed (hydrophonic or otherwise) or
-- cheese packaging and storage (could be all the above).
Agree?
I would love to say that these improvements are leading to a lower cheese price, but two month's data is perhaps just an anomaly. Hopefully the trend will continue as efficiencies accumulate.
There are some new market entrants in the past year with modern and efficient operations, both on the production and processing side, and as these ventures capture market share from market incumbents the cheese price may ease somewhat. If GCF and DIG get their corporate vertically integrated dairies off the ground, it may ease even more, but that may take three years or more to accomplish.
However a great deal of Georgian cheese is made from imported milk powder and vegetable oil, which are both dollarised commodities. To an extent cheese prices will track those commodity prices rather than the dynamics of Georgian dairy herds, at least until such time as the local herd can substitute fat and protein from cheaper local milk for these commodities, or until the consumer demands cheese made from 100% fresh milk, or both.
It would be interesting to see if this trend continues in the future and if prices of cheese in summer and winter start to converge.
In the blog it's said that "Over the years, we have been observing a sharp upward movement in the price of cheese from July till January, and an equally sharp downward movement from February till June". That's quite interesting, because I would expect downward movement in the price of milk in April-September when more milk is supplied to the market and upward movement in prices in November-February, when milk supply is low. It seems like cheese and milk prices are not very much correlated according to Khachapuri Index data. This might signal the usage of milk powder. However based on my observations in some regions of Georgia (mainly Samtskhe-Javakheti and Kvemo Kartli) I tend to think that small factories which sell their cheese to intermediaries (and then intermediaries sell to other intermediaries or bring to city markets), are not likely to use milk powder.Their volumes are usually small and highly dependent on volume of milk collected. Maybe in other regions the situation is different and because of this there is kind of a mismatch in milk and cheese prices.
I like optimistic guesses about the reasons why price of cheese became lower in winter. As Simon mentioned, some development agencies in Georgia try to promote artificial insemination, better animal nutrition practices and advantages of winter milk and it would be great to know that their work resulted in a significant improvement of animal nutrition and breeding practices. Although, knowing how reluctant farmers are about artificial insemination for example, it's hard to believe that change is driven by them, if there is any change.
Again, we might see some clear trends once more information is collected for future months.
Thanks, Salome! I think that Georgian milk production peaks in early spring (two month after calving, which starts in December and peaks in January and February), and that's when milk prices reach their minimum. Cheese prices reach their minimum with a small lag, by June.
As for powder, I would agree that it is not used by small Georgian producers, small factories or and households. If milk powder were to be introduced on a large scale, this would have shifted the entire supply curve to the right, depressing prices throughout the year. What we observe is not lower prices but less volatility (lower maximum and higher minimum). This is consistent with milk production been spread over more months and/or improved storage of cheese.