By Snežana Rakić
The American vaudeville performer Will Rogers once said that you should always invest in inflation because “it’s the only thing going up”.
Economists say that inflation is the most obvious sign of a mismanaged nation and judging by the galloping food prices in Serbia, which are the fuel behind the country’s ever-growing inflation in the last year or so, our nation is terribly mismanaged. Serbia has once again become an infamous record-holder, i.e. a country with the second-highest food prices in Europe, behind Turkey which is in a league of its own with a 74.3% increase in food prices. Serbia ranks second with 17.9% and its neighbour Hungary ranks third with 17.1% (Eurostat data for 2023).
The prices of milk, cheese and eggs in our country jumped by as much as 43.3 percent, while the prices of most food products went up by more than 20 percent on an annual basis. The annual prices of meat, oil and fats went up 21 percent, fruit by 20.2 percent and vegetables by 18.4 percent
The reasons for exuberant food prices in Serbia are many and varied – from the ongoing conflict in Ukraine which spoiled the balance of commodity prices and supply in the European agricultural market considering that Ukraine is or was the top European producer of several commodities including sunflower oil and seed, winter wheat and summer barley to climate conditions and super high retail margins on basic groceries (milk and dairy products, meats, etc.).
There is also the issue of badly managed agriculture, the decades-long neglect of the country’s farmers, low buy-out prices of grain and milk and the fluctuating diesel prices (a fuel that powers agricultural machinery) which, after a recent hike in excise duty, has reached the highest price ever historically – 211 dinars per litre. For comparison, the price of a litre of diesel in Serbia is higher than in Germany but it is utterly futile to compare the purchasing power of an ordinary German to the purchasing power of an ordinary Serb.
For instance, the average consumer basket in Serbia costs around 99,000 dinars, while the average net salary was around 83,000 dinars (if we were to believe the state’s statistics), although the median salary, i.e. the salary received by around 50% of the working population, is around 65,000. The minimum value of the consumer basket is 52,000 dinars.
Farmers in Serbia are now struggling to cover their basic costs with the buy-out prices of wheat and maize in Serbia significantly lower than on the stock exchange in Budapest. In Serbia, maize is sold at 25 dinars per kilogramme and wheat at 16 dinars while at the Budapest Stock Exchange, their prices are 27 and 20 dinars per kilogramme respectively.“The Serbian market is closed. Someone is making a huge profit from the production/buy-out price difference while farmers cannot cover their basic production costs,” the president of the Association of Farmers’ Associations of Banat, Dragan Kleut, said recently.
The majority of farmers believe that processing plants and retailers take the most money on margins and this is the real reason for the high prices we have today.
Most economists blame the growing food prices not on current events (such as the Ukraine conflict or growing global inflation) but rather on the fact that, for the past ten years, Serbia has been implementing a rather bad agricultural policy. There is also a pronounced lack of competition in the food market with the situation the worst in the dairy product market with Serbia, once one of the highest-producing milk countries in Southeast Europe, now forced to import milk.
In the first quarter of this year alone, Serbia imported more milk than it exported – by 4,000 tonnes. The country mostly imports milk from Poland, Bosnia and Herzegovina, France, Denmark and Croatia.
“It is obvious that this happened because of the inadequate livestock policy and problems related to the buy-out price of milk. The Ministry of Agriculture should determine better milk premiums and incentives for the development of cattle breeding because Serbia has been on a constant downward trend for years now,” economist Saša Đogović points out.
Speaking about the countries of the region that are not EU members, former state secretary in the Ministry of Finance and now a professor at FEFA Faculty, Goran Radosavljević, says that the differences between our and regional countries are not great and that it is logical for a country like Montenegro, for instance, to record high food prices, considering that it imports almost 100 percent of agricultural products.
“On the contrary, in Serbia, which is a predominantly agricultural country, the increase in food prices shows instabilities that have little to do with imported inflation. The Serbian government says that this is not the case because it needs to convince its voters that they live in an El Dorado but the truth is that they live in the fourth poorest country in all of Europe,” Professor Radosavljević adds.
Apart from the government, the National Bank of Serbia is quite optimistic regarding inflation forecasts, so it announced that inflation should be halved by the year-end.
“Prices will never go back to normal. They will always stay this way. The price hike is permanent, even if inflation is declining. They will never go back to the (pre-pandemic) level and it average wage will never be able to keep up with the price increases. This is probably the reason why the government and the NBS have been so adamant in convincing the public that things are not so bad. The reality is that things are catastrophically bad, with food prices well above and wages well below the European average. This is an essential problem, which puts the greatest pressure on the middle class of citizens and those on the verge of poverty,” Professor Radosavljević adds.
There is one more thing to consider when speaking about inflation – a factor that economists call Engel’s Law.
Engel’s Law is an economic theory put forth in 1857 by Ernst Engel, a German statistician. It states that the percentage of income allocated for food purchases decreases as a household’s income rises, while the percentage spent on other things (such as education and recreation) increases.
Or “the poorer a family, the greater the proportion of its total expenditure that must be devoted to the provision of food”.
In more simple terms, once families have met their food needs, they have money to spend on other things, some of which (education, for example) may lead to even greater financial security and affluence.
The last research (conducted in April 2022) shows that in Serbia, on average, more than a third of the family monthly budget is spent on food and soft drinks – 34.3 percent with the data varying in different parts of Serbia – in Belgrade, food accounts for 32 percent of costs and in the rest of Serbia, about 35 percent.
In other words, galloping food prices in Serbia affect the average family budget much worse than a German or French family.
Also, the latest results indicate that the rate of absolute poverty in Serbia in 2022 increased to 12.3% for the entire population, and a similar trend was recorded for the population over 65 and it stands at 10.3%, which is an increase from 2020 when it was 6.8%.
Last but not least – corporate greed
Most economists agree that when speaking about inflation and ever-growing prices, one should not forget about something called corporate greed, i.e. the fact that certain large and powerful companies use the current inflation as an excuse to increase prices even when there is no real need.
The situation in Serbia could, among other things, be a consequence of the behaviour of powerful companies that participate in the food supply chain – from producers, importers and warehouses to distributors and retailers.
And this is not endemic only to Serbia…
BEUC, an EU-based umbrella organization that gathers 45 independent consumer associations from 31 countries, called the antimonopoly commissions to act against the obvious greed of food producers, retailers and cartels.
In its report, BEUC says:” Experts, including UBS Chief Economist Paul Donovan, are concerned that some companies may have taken unfair advantage of rising inflation to boost profit margins, pushing up retail prices by more than any increase in their own costs, perhaps exploiting consumers’ expectations that prices are going up. Indeed, just last month the International Monetary Fund published data confirming that rising corporate profits were the biggest contributing factor to inflation over the past two years, with companies pushing up prices by more than the rising costs of energy.”
Economists in Serbia say that in order to counteract corporate greed, the state should increase its regulatory role to improve the quality of the market structure and limit/prevent possible monopolistic/cartel behaviour, which, in turn, should ensure the availability of food at affordable prices.
The willingness of the Serbian government to step on the toes of big corporations and investigate their monopolistic behaviour is a well-documented failure so for the time being or at least until the government changes, we should not hold our breath waiting on the authorities to tackle corporate greed.
This post is also available in: Italiano