Price Monitoring for Food Security in the Kyrgyz Republic, Issue 40 | 05 May 2021

Situation Report
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This issue of the Price Monitoring Bulletin is prepared based on the operational daily food price data collected by the National Statistics Committee from 18 markets across the country and disaggregated at province level as the average value (Chuy province - Tokmok, Kara-Balta; Osh province - Osh, Uzgen, Kara-Suu and Nookat; Talas province - Talas and Manas; Naryn province - Naryn and Chaek; Batken province - Batken and Isfana; JalalAbad province - Jalal-Abad, Toktogul and Kerben; Yssyk-Kul province - Karakol and Balykchy; and Bishkek city). This is a secondary data analysis.


SITUATION UPDATE: The imposed restrictive measures due to the spread of the new strains of COVID-19 and the slow vaccination rate of the world's population continues to have a moderating effect on the growth of the global economy. In January-April 2021, the Kyrgyz Republic’s GDP decreased by 3.8 percent totalling 166 billion Kyrgyz soms. Negative trends continued to be observed in the construction, wholesale and retail trade sectors. The service sectors accounted for the highest share of GDP at 49.8 percent. Although domestic demand remains weak, there are signs of economic recovery like the positive inflow of foreign currencies into the country. In January-March 2021, remittances to the country increased by 18.6 percent (amounting to USD 542.9 million). The Consumer Price Index, which measures price inflation, increased by 9.9 percent for all goods and services and by 17 percent for staple foods (+23.9 percent for meat, +7.2 percent for bread products, +11.3 percent for milk and dairy products, +47.4 percent for oils and fats, +13.5 percent for vegetables, and +24.7 percent for sugar). The main pressure on the dynamics of food prices is being exerted by external factors, such as the growth of global food market prices and the limited supply in producer countries. A possible increase in the cost of a number of administered tariffs will additionally contribute to the overall inflation in the country. Indeed, within the EAEU, the Kyrgyz Republic experienced the overall average highest increase of prices and tariffs (1.1 percent). These aforementioned inflationary factors are predicted to cause a higher level of inflation in the Kyrgyz Republic by the end of 2021 (NBKR). Rising food prices are also affecting households’ access to a nutritious diet, vital for all-round growth and development. The Government continues to monitor and stabilize food markets across the country through price controls on 11 essential food items and regulating import and export volumes. The observed unstable weather conditions (frequent rains with a decrease in temperature) in April 2021 resulted in a slowdown in spring sowing. As of 23 April 2021, 375,000 hectares were sown with spring crops, which is 10.4 percent lower compared to the same period of 2020.
The following section discusses the average prices for the two weeks from 21 April to 5 May 2021 in comparison to the previous two weeks, the previous month’s average (March 2021), the monthly average in February 2020 (before the COVID19 outbreak began in the country) and the annual average of April 2020 (when appropriate). The biweekly monitoring of food prices revealed minor fluctuations of several commodities.

• WHEAT: During the weeks from 21 April to 5 May 2021, the national retail prices of wheat increased by 1 percent from the previous two weeks’ levels, reaching an average price of 24.51 KGS/Kg. As of 5 May 2021, the highest price of wheat was observed in Osh and Batken provinces (26 KGS/Kg) and the lowest price was in Naryn province (19 KGS/Kg). Globally, higher cereal prices were driven by lower production forecasts in major exporting countries, new and rumoured export restrictions, and export wheat taxes in some major producing countries. Wheat prices rose in most major exporting countries in December and early January, reflecting the news of new export restrictions in the Russian Federation. The Russian Federation export quota and export tax do not apply to EAEU countries. Wheat prices were 2 percent higher compared to March 2021, but were 29 percent higher compared to February 2020, and continued to be higher than normal annual price fluctuations, within 15 percent of the benchmark.

• OIL (COOKING): The national retail prices of vegetable oil rose by another 1 percent from the previous two weeks’ levels (173.70 KGS/l), reaching the highest value of all time. As of 5 May 2021, the highest price was in Batken province (184 KGS/l) and the lowest was in Talas province (161 KGS/l). The Kyrgyz Republic has a high import dependency on vegetable oil due to its low internal production and its low capacity for the processing of oil seeds. The trend of increasing vegetable oil prices was caused by increasing export prices in the Russian Federation and Kazakhstan, attributed to unfavourable weather conditions and a consequently lower harvest. Compared to March 2021 and February 2020, the prices were 7 percent and 82 percent higher, respectively, an increase above normal annual price fluctuations.

• SUGAR: The national retail prices of sugar decreased by 1 percent from the previous two weeks’ levels, leading to an average price of 65.64 KGS/Kg. The recent increase in sugar prices was in line with global trends, as historically proven by the positive correlation between global and national prices. Globally, sugar prices increased in 2020 due to the prospect of lower sugar outputs in both Brazil and India, the two largest sugar-producing countries, caused by below average rainfalls. As of 5 May 2021, the highest price was observed in Batken and Osh provinces (70 KGS/ Kg), while the lowest price was in Talas and Yssyk-Kul provinces (63 KGS/Kg). The price of sugar was 2 percent and 40 percent higher than March 2021 and April 2020 levels, respectively, an increase significantly higher than normal annual price fluctuations. The price of sugar was 60 percent higher compared to February 2020.
The rise in prices for sunflower oil and sugar is associated with an increase in suppliers’ prices, their significant reduction in volume due to poor harvests, as well as the depreciation of the national currency. The Ministry of Economy and Finance of the Kyrgyz Republic allocated KGS 318.4 million to replenish sugar and vegetable oil stocks. The Government of Kyrgyzstan announced that the country has an ample supply of sugar for domestic consumption for the next 3.5 to 4 months. Part of the imported granulated sugar and vegetable oil will be distributed by the Government to the socially vulnerable.

• POTATOES: The national retail prices of potatoes increased by another 1 percent from the previous two weeks’ levels, reaching an average price of 36.21 (KGS/kg). The price increase is following seasonal fluctuations and due to the ending stocks of the previous year’s harvest. As of 5 May 2021, the highest price was observed in Batken province (39 KGS/kg) and the lowest in Naryn province (29 KGS/kg). The prices of potatoes were 7 percent and 64 percent higher than March 2021 and February 2020, respectively.

• MEAT (BEEF and MUTTON): During the weeks from 21 April to 5 May 2021, the national retail prices of meat remained stable for beef and increased by 2 percent for mutton compared to the previous two weeks’ levels, with an average price of 450.80 KGS/Kg for beef and 453.39 KGS/Kg for mutton. As of 5 May 2021, the highest prices for beef were observed in Bishkek city and Naryn province at 455 KGS/Kg and for mutton in Batken province at 495 KGS/Kg. The latest increase in the prices of meat in the Kyrgyz Republic was caused by the restrictions imposed by Kazakhstan on the export of meat and livestock, which boosted the demand from Uzbekistan and encouraged the Kyrgyz Republic to increase its exports to Uzbekistan. The prices for beef and mutton increased by 1 percent compared to March 2021 levels. The prices of beef and mutton rose by 25 percent and 30 percent, respectively, compared to April 2020, and by 29 percent and 41 percent, respectively, compared to February 2020, increases that were above normal annual price fluctuations. There currently a proposition to remove the value-added tax on the importation of agricultural animals.
EXCHANGE RATE: The recovery of economic activity in the country, as well as the efforts to preserve global commodity prices, led to an increase in the volatility of the demand for foreign currencies in the domestic foreign exchange market in 2021. The National Bank continues to participate in the foreign exchange market to stabilize sharp fluctuations in the exchange rate. During the two weeks from 21 April to 5 May 2021, the Kyrgyz som was stable at 84.8 KGS per 1 USD, the Russian ruble slightly appreciated from 76.02 RUB to 75.26 RUB per 1 USD and the Kazakh tenge also slightly appreciated from 429.76 KZT to 428 KZT per 1 USD. However, since the beginning of March 2020, these currencies had a sharp devaluation of 21 percent, 12 percent and 13 percent, respectively, against the US dollar according to the exchange rate of the National Bank. Lower remittance levels were among the factors affecting the weakening of the external position of the Kyrgyz som. Currency movements are one of the main driving forces of the retail prices of imported basic food commodities including wheat, vegetable oil and sugar.
GLOBAL OIL AND RETAIL PRICES: Last year, crude oil prices slumped dramatically following the ‘Russia–Saudi Arabia oil price war’ in March 2020 and the decline in consumer demand with the spread of the COVID-19 pandemic further impacted the global economy. According to global forecasts, the full recovery of oil demand levels may not take place until 2022, while the demand for 2021 expected to remain below 2019 levels. Despite the rising oil price forecasts for early 2021, experts still expect a downward oil price at the beginning of the second quarter of 2021 when global oil production is forecasted to rise and cause inventories to draw up slower. During the weeks from 19 April to 3 May 2021, WTI prices increased from 63.33 USD per barrel to 64.46 USD per barrel, while Brent prices increased from 66.54 USD per barrel to 67.73 USB per barrel. As of 3 May, WTI and Brent prices remained 38 percent and 29 percent higher, respectively, than March 2020 levels. The national retail prices for fuel (AI-92) significantly increased by 11 percent and for diesel by 2 percent as of 5 May 2021 compared to March 2021 levels, reaching 48.96 KGS per litre for fuel (AI92) and 44.63 KGS per litre. The reason for the price increases was the significant increase in oil producer prices (USD 20 per ton) in the Russian Federation, the export ban of fuel in Kazakhstan and the devaluation of the local currency. The local oil association expects a significant retail fuel price increase (60-65 KGS per litre) in the next half year. On 2 March, the new Government banned fuel exports beyond the borders of the Eurasian Economic Union to stabilize prices for oil and oil products in the domestic market. Since the prices of diesel and petrol heavily impact food prices, the stability of diesel and petrol prices is critical, especially in rural areas across the country. An agreement was signed between the Ministry of Agriculture, Water Resources and Regional Development and the Association of Oil Traders of Kyrgyzstan to ensure that there will be no shortage of fuels and lubricants to rural producers. The Antimonopoly Agency will continue to monitor and stabilize fuel prices across the country. Neighbouring countries (Tajikistan and Uzbekistan) have also faced similar fuel price increases.