Kyrgyzstan + 2 more

Price Monitoring for Food Security in the Kyrgyz Republic, Issue # 55 | 20 May 2022

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Situation Update

The developments in Ukraine and its economic consequences continue to affect global grain and energy markets, pushing food prices higher. While we see stabilization trends and some Q1 positive figures in the Kyrgyz Republic, the situation is volatile and the effects of this remain to be born by the most vulnerable. After significant depreciation in March 2022 (99 KGS per USD compared to 86 KGS in February), as of 20th May, the Kyrgyz Som appreciated by 19 percent against the dollar reaching 80 KGS per USD. The national retail prices for fuel (AI-92) and for diesel continue to be stable.

Notwithstanding the challenges for the Kyrgyz economy to recover from the effects of the COVID-19 pandemic, some improvements were observed in early 2022. In January – April 2022, monthly Global Domestic Product (GDP) increased by 5.4 percent, compared to the previous year, adding a net 189 billion Kyrgyz Soms (USD 2.3 billion) to the economy. IMF is projecting that GDP will increase by 2.8 percent this year. On the other hand, in April 2022, inflation was at 14.5 percent (NBKR) compared to April 2021, the highest in the region. High inflation reduces the purchasing power of households, thus hindering their access to a nutritious diet. In March 2022, the volume of remittances was 20 percent lower than in February 2022. Remittances in January-March 2022, are 3 percent lower than the same period last year.

Increasing geopolitical risks in the world and the region have already begun to negatively impact the recovery in the Kyrgyz Republic, most notably seen in rising consumer prices. In January – April 2022, the Consumer Price Index (CPI) increased by 12.4 percent for all goods and services and by 17 percent for staple foods, as compared to January – April 2021. As reported by the Government, in March 2022, in the state reserve there are still five-month national stocks of vegetable oil, three-month stocks of sugar and 60 thousand tons of wheat flour.

Due to the events in Ukraine, the sanctions imposed on the Russian Federation and the related destabilization of global and regional markets, importing commodities to the Kyrgyz Republic could be potentially harder this year. The CPI for fuel and lubricants is estimated to have increased by 55 percent, leading to an increase of transportation costs, which in turn has affected all other prices.

Both the Russian Federation and Kazakhstan have posed export bans on wheat and sugar, with quotas provided to the EAEU states, including the Kyrgyz Republic. These restrictions, introduced until June, could be subject to re-consideration, as the situation unfolds. Despite the record wheat harvest expected in the Russian Federation in 2022, Russian regulators continue to tightly control grain exports, fearing re-export, and may extend the restrictions on supplies to the EAEU. The Kyrgyz Republic has a high dependency on imports: 30 percent for wheat, 84 percent for vegetable oil and 37 percent for sugar. Out of the imported wheat, vegetable oil and sugar, 95 percent, 81 percent and 99 percent respectively comes from the Russian Federation. The Government has prepared a decree for the Cabinet Ministers on the introduction of a temporary ban starting from 15 February until 15 August 2022 on the export of wheat, wheat flour, sugar, vegetable oil, eggs and feed crops from the Kyrgyz Republic to other countries outside the EAEU, to ensure the food security of the country, prevent critical shortages of food and promptly respond to internal and external threats to the food market. To stabilise the market, the Government has introduced Zero VAT for the import of sugar and vegetable oil.

Fertilizer prices have been rising sharply worldwide and rising input costs could impact next season’s harvest, leading to elevated food prices in the longer run. The Russian Federation is one of the world’s most important exporters of the three major groups of fertilizers – nitrogen, phosphorus and potassium, but its exports are affected by sanctions. Fertilizer prices have risen nearly 30 percent since the start of 2022, following last year’s 80 percent surge. Fertilizer prices are projected to rise by almost 70 percent in 2022 before easing in 2023.

Last year abnormally high temperatures and lack of irrigation water led to significant lower yields across multiple key crops: wheat (-42 percent), barley (-46 percent), oil crops (-25.4 percent), sugar beet (-18 percent) and melons (-14 percent). This year, favourable weather conditions observed in April led to an increase in the pace of spring field works. Thus, as of 23 April 2022, the planting areas increased by 14 percent compared to the previous year, more specifically +20 percent for potatoes, +15 percent for vegetables and +16 percent for oil crops (sunflower, cotton and safflower). Yet, according to the European Centre for Medium-Range Weather Forecasts, rainfall from May to July 2022 is likely to be below average conditions, with only a 10-30 percent possibility remaining of exceeding the median rainfall across the country. In the same period, above average temperatures are forecasted (with an 80 percent possibility of exceeding median temperature). Above average temperatures may lead to flash floods and landslides caused by earlier than normal snowmelt that could result in crop damage in the next coming months. After last year losses, the resilience of smallholder farmers may be further challenged if abnormal dryness is also experienced this year, due to forecasted lower rainfall and higher temperatures.