Parliamentary Commission hears from food producers on pressures driving up consumer prices

At a session of the Georgian Parliament’s temporary commission examining the pricing structures of food products, medicines and fuel, commission members heard testimony from food manufacturers.

The commission’s chairman, Shota Berekashvili, summarised the findings of the two preceding sessions and spoke about the problems and challenges affecting the factors that determine the price of locally produced goods.

“I wish to highlight several significant factors. First, a large share of production is dependent on imported raw materials, which in itself creates inflationary risks. Second, there has been a considerable increase in operating costs, particularly in sales and distribution expenses, which are directly linked to relations with retail chain stores. This means that getting their own products onto shelves comes at an exceptionally high cost to manufacturers. We have also observed that in some cases there is a working capital deficit, forcing manufacturers to take on additional credit, which currently costs between 15 and 16 per cent, and all of this ultimately feeds through into consumer prices,” Berekashvili noted.

He added that, overall, the current pricing chain and business practices create an uncompetitive environment for local producers, which inevitably impacts the final price of their products.

“Our goal is to enhance the competitiveness of local production. This is a matter of particular importance to us, because we want local manufacturers to be able to compete on fair terms with imported goods, through sound business management and improved efficiency, and for that competitiveness to be ultimately reflected in competitive prices for consumers,” the commission chairman said.

At the session, representatives from MSCB Georgia, Vasadze’s Bread, and Barambo discussed their relationships with retail chains and highlighted the challenges that companies encounter in distributing and selling their products through these networks.

They stated that retail chains occupy a position of privilege relative to manufacturers, enabling them to unilaterally terminate contracts concerning the placement of goods in their stores. A further significant problem, in their assessment, is the so-called cashback system, which increases year on year.

Local producers, when discussing the issues at hand, also drew attention to competition from imported goods, the management of stock levels within chain supermarkets, and delayed payments, all of which compel companies to turn to the banks.

Similar concerns were voiced by representatives of Jolio Ltd, Tkbili Kvekana, Marneuli Food Factory, and Georgian-European Pasta Industry JSC.

They noted that, beyond their fraught relations with retail chains, companies are also heavily burdened by challenges within the production process itself, including utility and fuel costs, and dependence on imported goods.

The commission chairman spoke about the issues that had emerged from the meetings with local producers.

“Various problems are driving price increases for locally produced goods, problems that were clearly identified during our meetings with manufacturers. It should be noted that the mark-up involves a three-stage process, comprising the manufacturer, the importer-distributor, and the retail chain operators. These three stages are closely interlinked, and it is therefore impossible to speak of any final conclusions today until all three have been thoroughly examined.

We have now concluded our meetings with local manufacturing companies, and at the commission’s subsequent sessions, we will continue with meetings with importers and distributors,” Berekashvili stated.