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Crisis aftermath
Iurie Gotisan, 30 March 2004

The recent developments in the drought crisis make a price hike on bread quite inevitable. Definitely the skyrocketed prices would be presented as a phenomena affecting each one of us. Moreover, when it comes to food any slight increase in prices affects directly vulnerable strata especially the elderly. According to official statistics food accounts for 70% of the expenditures in poor households. And bread is indeed one of the basic food products and is in demand regardless of the price fluctuations. Therefore, Chisinau residents would have to cut-off other expenditures, including those on communal services, so as to keep afloat. Having said that, it is clear that any slight increase in prices on bread would have a disastrous impact on the population.

Even back in October it was quite clear that prices would be propelled further upwards, and this because of surging production costs. If there are to be any bread manufacturers at all, then they should be entitled to a profit margin, at least a minimal one. Moreover, given the rising cost of wheat and the gaping lack of grain on the internal market one may well expect that the previous price hike would not be the last one. Though, governmental officials are well aware of that. Therefore, one may rightly wonder should people be warned beforehand about any price hike?

On the one hand, if announced beforehand, the market and stores would be a mess. Government should have announced early during the harvesting period that given the circumstances a price hike was inevitable, for the citizens to have time to find alternative sources. Franzeluta's increase of prices back in November 2003 beset a social upheaval. Prices surged by 30-60% depending on breadstuff. Though, the bread whose price Franzeluta claimed kept steady was nowhere to be found.

Recent tensions between bread manufacturers and governmental structures, which certainly are politically motivated, stand out as testimony to the fact that the famous promise to keep bread prices down made by Communists in elections, was compromised by economic realities. It is known for a fact that governmental officials pledged to keep the prices down or at least steady for another couple of months, regardless of market outlook. It is also true that the state did try to keep prices under control, move that besides running counter to the very principles of market economy where prices are shaped by offer and demand. It is all-too-clear now that market forces impinge on the political will of the ruling party. Currently grain reserve of the Republic of Moldova reached 30 thousand tones, amount enough to take it until April 15. Moldova's wheat harvest in 2003 was ten times less than in 2002 amounting to only 102 tones. Amidst those negative developments in the agricultural sector, it's hard to predict as to how Moldova would cope without foreign aid.

On top of that, sharp price hike on bread sets a favourable economic and psychological climate for a hike in prices on other food products. As if to underline this point a big dairy manufacturer has already announced it would revise its prices. Unless bread prices drop to the previous average, one might well expect other prices to be propelled further upwards in the next couple of months, so as to balance the level of relative prices on food products.

Besides the likelihood of other prices being adjusted to surged breadstuffs price, there is also the risk of triggering an inflationary spiral. Trade unions would demand labour contracts to be renegotiated, whereas social rallies and strikes would be inevitable. To diminish the domestic debt Government might have to give up timely payment of foreign debt so as to be able to raise pensions and nominal subsidies without even having funds to cover for them. And such a move would definitely upsurge foreign debt.






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