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5THE iMPACT OF FOOD iNFLATiONS ON THE BALANCE iN THE FOOD MARKET
AYNUR FAZiL GiZi ALLAHYAROVA
PhD student of Azerbaijan Agricultural Economics Research Center
Summary In modern conditions, constant fluctuations in the level ofprices in the food market are observed, which, as a result, negatively affect the social status of low-income fractions of the population. The rise in prices in the food market has its own reasons. These reasons include, first of all, the increase in the volume of expenses for the production of agricultural and food products, as well as the fact that agricultural and commodity producers do not have such wide opportunities to enter the food markets, or rather, intermediaries perform more intermediate functions in the food market with agricultural and commodity producers, and processes related to monopoly. True, the above mentioned factors can be characterized as factors affecting the increase in the level ofprices in the food market and the balance in the food market. But at the same time, one of the most important reasons is related to food products imported into the country. Along with the increase in the volume of food products imported into the country, the rise in prices for these products also leads to an imbalance in the food market. Therefore, in fact, food products imported into the country, in essence, perform the functions of imported inflation. The imbalance in the food market is influenced by a number offactors, and food inflation plays an important role in these factors. Food inflation is one of the peculiar forms of inflation, characterized as the loss ofpurchasing power of the population's income against the background of rising prices for food products.
Inflation has been one of the most major diseases of the economy at all times, leading to a decline in economic activity and a devaluation of economic activity. Inflation is manifested against the background of such a rapid rise in prices that the proceeds, including wages, pensions and other mandatory payments of employees in the budget sector, are essentially losing purchasing power. In general, even the weakest form of inflation promises a threat to the development of the economy. For this purpose, sustainable anti-inflationary measures are carried out in developed countries of the world, and in all cases one of the most important priorities of sustainable anti-inflationary measures is manitary measures aimed at limiting the growth of money supply. In general, monetary policy is applied in the economy in order to prevent the inflationary crisis, and from the point of view of preventing inflationary processes, it should be recognized that there is no alternative to manitary policy.
From studies conducted by M. Bruno and Mr.Estreli, in the 90s of the last century on the example of 127 countries of the world, it is concluded that there is a close interaction between economic growth and inflation. Thus, if there is an inflation rate of about 40 per cent per year, it can be considered as the limit for the transition of the economy from a recession to a normal economic situation, and in other words, it can be characterized as a recovery of the economy. It does not negatively affect high GDP growth if inflation does not exceed 5% per year. Only when hyperinflation exceeds 1000% per year does the occurrence of a significant economic downturn already become a reality ( 1, p. 20). It is true that inflation of 5 per cent does not have a negative impact on GDP growth, but in the event of inflation expectations, these processes are more likely to be reflected in the food market.
The essence of inflation in modern conditions is determined by 3 elements, which the first is a significant increase in the volume of money supply in circulation, the second is a decrease in the purchasing power of money, or rather, its depreciation, and the third is a long-term and steady increase in the overall price level in the economy ( 2, p. 225).
In our opinion, the mentioned manifestations of inflation are manifested mainly at the level of macroeconomics and imply a rise in prices for goods against the background of a sharp increase in the price level, which is measured in official statistics through price indices. One of the most important forms of manifestation of inflation is considered to be food inflation. The occurrence of
food inflation, in fact, entails a faster intensification of the crisis, and food inflation, as a rule, is higher than the official price index, that is, the inflation rate. Food inflation is characterized by a sharp rise in prices for food and food products, which is realized primarily in the agrarian food market. In general, food inflation is more common in developing countries. Considering that in developing countries, a significant part of the wages and incomes of the population as a whole is directed only to the acquisition of food products. In such a situation, food inflation, in essence, leads to a faster depreciation of the population's income. More precisely, there is an increase in the level of prices in the reporting year compared to the current price level in the food products market in the previous year, which characterizes food inflation. During food inflation, there is an increase in prices for food products in a specific period of time. The fact is that although this is purely associated with connector fluctuations in global markets in a number of cases, this trend also affects the prices of domestic products. In general, food inflation leads to a greater loss of the remaining part of income at the disposal. Food inflation is considered one of the most important threat tools for food security. It should be noted that due to the emergence of food inflation, there are sharp reductions and devaluations in the family budgets of people. The occurrence of food inflation ultimately overshadows the increase in income compared to the increase in the level of wages, and in some cases the prices of food products sometimes exceed the growth rate of income by more than 2 times, which is considered one of the most important aspects characterizing the occurrence of insolvency, impoverishment.
The laundering of a significant part of the population's income by food inflation is considered one of the most important social problems caused by inflation in the economy. All this leads to the fact that food inflation causes people in society to face problems from a social point of view. The most important factor characterizing food inflation is that the incomes of people remaining at the disposal are almost destroyed, and thus the processes of washing the middle class occur. The rapid continuation of these processes leads to the fact that the population turns to banks in order to solve these or other social problems. According to Academician Z. A. Samadzade, after the devaluations of February and December 2015, the country's banking sector began to experience serious problems. In particular, there have been serious grievances and problems among hundreds of thousands of people who have taken loans from banks. The vast majority of Bank customers were in serious trouble, especially in the payment of loans in dollars. Despite the fact that this problem was repeatedly discussed at different levels, the search for ways out and a number of proposals were made, mutual understanding between banks and citizens was not possible in the direction of solving the problem. In particular, the banking sector did not take any steps forward, despite the support of the state and the policy of improving the solution of this issue. As a result, citizens are increasingly being harassed, offended, 100 thousands of people remain before the court and have to waste time in litigation.
In general, although serious measures were taken by the state to improve banks, the president of the country Ilham Aliyev's statement of the importance of solving the problem related to loans played an important role in solving the problem ( 3, p. 418-419).
There are peculiar reasons for the emergence of food inflations. In general, taking it, it is possible to classify the causes of the emergence of food inflations under the name of economic and non-economic means. The economic causes of food inflations arising in the food market, as a rule, are caused both by the imbalance arising within the national economy and by the processes occurring in global world markets. The first factor, i.e. destructive processes within the national economy, can be explained by the fact that unbalanced development trends are observed in the sectoral and territorial sections of the economy. In particular, the weak development of agriculture related to it, as well as the low level of investments in the agricultural and processing industry sector in comparison with other sectors of the economy, the low level of agricultural productivity and labor productivity, as a result of which significantly slows down economic growth in agriculture compared to other sectors. All this, in one way or another, limits the commodity threat to the food market, which is transmitted at the expense of domestic production. Of course, although this process leads to certain destructive tendencies in ensuring food security, food supply is formed through the use of import channels. Economic factors included agriculture, insufficient satisfaction of the needs of commodity
producers in working capital, failure to successfully complete the financial results of the extensive reproduction process, etc. it can be applied. In addition, agricultural, commodity producers are not able to compulsorily perform agrarian technical measures in an optimal time frame, which leads to a decrease in the level of productivity. Thus, it becomes a reality that the supply of local goods in the domestic food market is not limited.
And the non-economic reasons that form food inflation in the food market are more likely to occur as a result of their influence on other factors than economic ones. When approaching the problem from a global point of view, it should be noted that military-political processes, Wars, global climate changes and other similar factors, being uneconomical, do not affect the food market. For example, if we turn to specific facts, we can conclude that as a result of the Russian-Ukrainian war, there was an increase in prices for grain products. This is due to the fact that both countries are one of the world's strong grain miners. As a result, this leads to an increase in the prices of grain products not only in the region, that is, in the nearest neighbors, as well as to an increase in the level of prices even in distant regions of the world, to an increase in prices not only for grain-related flour products, but also for other substitute products, that is,
Global climate changes also play a significant role in shaping food inflation. For example, unfavorable passage of natural climatic conditions, sharp warming and other similar circumstances are among the non-economic factors for the occurrence of food infestations. It should be borne in mind that agriculture is directly dependent on climatic conditions, and discrepancies in natural climatic conditions, in essence, lead to problems in agrarian regions. The dependence of Agriculture on natural climatic conditions also limits its effective access to insurance. In particular, climatic discrepancies occurring in seasonal situations, as well as in the period of crop cultivation, lead to problems in agriculture in principle and play an important role in limiting the volume of commodity supply to the food market.
Food inflations are also called inflations, which in most cases are imported from abroad. Food inflation is more common in countries where the food markets of those countries are directly dependent on import channels. And this, in general, complicates the situation. In countries with a low level of self-sufficiency in food products, the occurrence of food outbreaks is almost normal, which ultimately intensifies threats to the country's food security and socio-political stability of society. However, all this does not mean at all that food inflation is observed only in countries that supply the food market through import channels. Food inflations also exist in countries that supply their markets at the expense of local production. This process has its own creating reasons. Although the food market in the production of this or that product is fully saturated due to local production, the initial conditions and production resources related to the production of these products are imported in a number of cases, and in other cases changes in international markets, including the increase in the prices of fuel and energy resources and other such cases, in principle, lead to an increase in the prices of local food products.
The analysis shows that in comparison with 2000, in 2016 year, there were radical changes in the price indices of a number of key products on the world market. So, in 2000 and in 2016, prices for food products increased by 2 times or 205%, agricultural and raw materials-by 157%. The level of growth in the prices of mineral raw materials on the world market rose by 205% or 2.05 times, and the price of crude oil by 152%. In addition, there was also a 31% increase in prices for products in the processing industry (free market commodity price index, annual, 1960-2016-UNCTADSTAT-o$^Ha.nbHbiH caHTaHKTag (4)). One can only note the fact that by 2022, 70% of Turkey and Egypt's grain imports were accounted for by Russia and Ukraine. In Oman, Israel and Yemen, the share of grain imports from Russia and Ukraine is 40% of the total grain imports ( 5). One of the obvious examples of food inflation in the food market is the restriction of subsidies for the production of bread and flour in Iran since the summer of 2022, which led to an increase in the price of flour by almost 5 times, and the price of chicken, eggs, milk and butter by up to 300% (6). As we mentioned above, one of the most important reasons for the emergence of food inflation in the food market is global climate changes. For example, in 2022, the outbreak of abnormal heat in India ultimately led to a decrease in the level of grain productivity, and grain production in the country decreased to 100
million tons, which led to problems in terms of meeting the needs of the domestic market. Thus, the need of the country's domestic market as a whole is equal to 103.6 tons of million tons in India, and the reduction in output to about 100 tons, in principle, left the country fully dependent on import channels( 7).
In general, global climate changes know almost no boundaries, these trends not only affect the economy of developing countries, agriculture, food markets, but also the consequences of global climate changes are observed in developed countries. In general, the problem is alarming if it arises in the world's main exporters of food products. My issue is that the negative consequences of extreme climatic conditions in 2022 were observed in developed countries, including those that are grain exporters. For example, as a result of the passage of extreme heat, grain yields in the United States decreased by up to 48%, and in Canada, pepper production decreased by up to 50% (8). In addition, the flooding of rivers and the emergence of strong floods in European countries had a significant negative impact on the level of agricultural productivity. Of course, all this has strengthened the volume of food inflations in the food markets of the countries importing food products, which has a negative impact on the imbalance in the food market. For example, at present in the food markets of our republic there is an increase in prices for processing products, that is, processed food products. This growth, in particular, shows itself more on those products that are imported. For example, at present, the price of 1 kilogram of butter in the food market of Azerbaijan varies in the range of 1718 Manats. It should be borne in mind that the level of self-sufficiency in butter in our country in 2017 ranged from 71%, in 2018-from 71.3%, in 2019-from 69.5%, in 2020-from 62.7%, and in 2021-from 66.7%. This shows that about 35% of demand is imported from abroad, which is due to the increase in prices for imported products( 9). However, it is possible to observe another contradictory trend. This trend is especially evident in the market of meat products. Thus, according to the State Statistics Committee of the Republic of Azerbaijan, the level of self-sufficiency in livestock products, including beef, in 2021 amounted to 91.9%, and the level of self-sufficiency in sheep and goat meat-98.2% (9, p. 76). However, despite all this, the prices of meat products in our country are quite high than the world market prices. For example, this process also has its own specific reasons. True , if we take into account that the level of self-sufficiency in beef for meat products, about 92%, it turns out that the dependence on imports, of course, is about 8%. Considering that the level of self-sufficiency in sheep and goat meat is 98.2%, the dependence on imports is 1.8%. However, at present in our country in September and October 2023, the price of mutton on the food market is 18 Manats, and beef is 16 Manats. This process has its own contradictory reasons. For example, these reasons can include:
- restriction of grazing areas related to the raising of sheep and cattle and its diversion in a number of cases to other crops, including cotton and grain;
- import of a significant part of the necessary feed for animals related to meat production from outside, from abroad;
-there is a high proportion of intermediaries in the market of meat products, in other words, there is a difference between the price offered by the manufacturer and the price formed in the market, about 30-40%. This differentiation leads to an increase in the price of the product. For example, at present, the agricultural and commodity producers in Azerbaijan give about 12 Manats per kilogram of mutton, while the price of mutton is 18 Manats. This shows that the difference of about 6 Manats falls on the share of intermediaries and organizations operating in wholesale markets as a whole;
-one of the factors contributing to the growth of prices in the meat products market is due to the presence of monopoly in this area in a number of cases, the lack of effective functioning of a free competitive environment.
In general, food inflation sharply disrupts the balance in the food market and leads to the emergence of sharp socio-economic proportions in society. In developed countries, necessary measures are being taken for this purpose.
It is a well-known fact that agriculture is not competitive, being the main producer of food products compared to other sectors of the economy. Therefore, the country is constantly increasing its economic support for this area. The cost of supporting European agricultural producers is 40% of
the cost of manufactured products. The share of government subsidies in the United States is 30%, in Canada-40%, in Japan-60%, in Sweden-59%, in the Netherlands-71%, and in Norway-77%. Along with these payments, the agrarian sphere is supported by other tools and mechanisms in foreign countries. It should be noted that measures aimed at supporting agricultural producers in these countries are carried out through Agrarian Policy. In particular, in the countries of the European Union, this process forms an important component of a single Agrarian Policy( 10, p. 182).
Food inflation disrupts the balance in the food market in terms of rising prices. Not only the ratio between supply and demand is violated, but also processes associated with an increase in price levels are manifested. One of the factors that create these processes is related to customs duties. In a number of cases in customs duties, the presence of official arbitrariness also acts as one of the points that exacerbate the processes. Thus, food inflation in the food market disrupts the balance in the food market in terms of rising price levels. This process is observed not only in cases where the demand for food products is more due to imports, but also in products with a high level of local self-sufficiency. While the increase in prices in segments dependent on import channels is more due to changes in the world market, including economic and military-political factors, the increase in prices for local products is due in some cases to the import of resources necessary for the production of local products from outside, including the introduction of strong fodder in animal husbandry, in addition, There is a need to implement the necessary measures by the state to prevent food inflation in the food market. From this point of view, the state should use both hard and moderate, that is, soft economic power, and Means, first of all, should lead to the preservation of balance in the food market and the availability of prices for all segments of society members.
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