site.btaFood Prices: Real Measures or Notice Boards?

Inflation in Bulgaria has eased over the last few months, which is not surprising. Annual inflation dropped to 6.3% in September 2023 from 17-18% at the end of 2022. Looking specifically at food prices, annual inflation fell to 10.4% in September 2023 from more than 25-26% at the end of last year. In at least four out of eight groups of essential foods, prices went down on a monthly basis in each of the months of July, August and September 2023. Still, the discussion on new measures with a focus on food retailers and a new method of monitoring food prices remains relevant, Petar Ganev of the Institute for Market Economics (IME) says in an analysis published on the IME website in October.

Economy Minister Bogdan Bogdanov has launched a new initiative, "Affordable for You", which targets essential foods, Ganev notes. Although the details about the initiative are not very clear, the minister has set out the general framework. Large supermarket chains are asked to put up notice boards showing the best prices for certain food products and to attach special tags to store shelves helping customers to identify the lowest-priced products. The initiative will last until May 2024, and participation is optional. The idea has some similarities with a widely publicized internet portal for food price monitoring, which was supposed to collect weekly data and inform consumers about the lowest food prices, with retailers contributing on a voluntary basis.

The new idea is probably intended to cause a greater publicity effect since a notice board at the entrance to a supermarket is more visible than a webpage which never became very popular among consumers. Beyond the publicity effect, however, the big question remains: what is the point in such a measure? Most retailers have always actively offered and advertised discounts on a selection of products which may surpass 1,000 items in the largest supermarket chains. Even the smallest shops rely on discounts to attract buyers. It is unclear how the new method fits in with this and other practices. It also remains to be seen how exactly a notice board showing the prices of certain goods will bring prices down, and whether retail chains have an interest in such a mechanism. We should note that the new campaign, like earlier ones, targets only large supermarket chains, although more than half of retail sales of food products from all groups are conducted through other, smaller and/or specialized outlets.

In the effort to control inflation, including the drive to meet the inflation requirement for eurozone entry, and in seeking partnership with the main market players (farmers and processors as well as traders), the government has real leverage which may not receive much publicity but can have a very direct impact on costs along the supply chain and on retail prices in stores, the analyst argues. Paradoxically, he says, the government is implementing and proposing a number of policies which can potentially push prices up, not down.

One example is a new ordinance on fiscal control over the movement of goods of high fiscal risk, including many food products, which became effective earlier in October and came under strong criticism from practically all players along the supply chain. The market participants are piqued not by the government's desire for stricter control and fiscal stability but by the procedural requirements. According to the corporate community, the requirements of the procedure will inevitably lead to higher personnel costs and a practical inability to follow the rules. The latter consequence implies a higher (or almost unavoidable) risk of penal sanctions and possible supply problems.

Another example of government action entailing increased business costs is the introduction of electronic vouchers for food, which are expected to replace paper vouchers entirely in 2024. The use of food vouchers has received a considerable boost in recent years, with the annual quota reaching BGN 1.4 billion in 2023. The electronification of food vouchers may sound like a measure which will facilitate operators, workers and traders alike and will reduce expenses, but it turns out that electronic vouchers will entail higher transaction costs. This is so because, in addition to the fee charged by the voucher operator, there will be various bank fees, including interchange fees, which can burden the electronic voucher with higher costs than an ordinary bank card payment.

Added to this is the ban on importing some goods, mainly sunflower, originating from Ukraine, which is still causing trouble to Bulgarian processors. Amid ongoing reports about problems for this country's leading sunflower oil refineries, a major firm, Astra Bioplant in the Danubian city of Ruse, is headed for a suspension of some of its business activities. The situation can be compounded by a proposed increase of the corporate income tax for large multinational and national companies as of January 1, 2024, which can endanger Bulgaria's competitive position and affect some large food retailers directly.

The government's actions can be viewed in the context of Economy Minister Bogdan Bogdanov's implicit admission that the Commission for Consumer Protection has been "misused" over the last year to exert administrative pressure on prices. It also transpired from Bogdanov's statement that complaints to the Commission have tripled over the last eight months, but their validity is yet to be considered. So, on the one hand, the government refrains from using administrative methods to fix prices and markups, but on the other hand, it seems that the idea of pressuring businesses is never far off.

The combination of regulatory pressure and government initiatives that entail higher business costs can hardly ease inflation even if retailers embrace the new idea and put up notice boards and special tags advertising low-priced foods. The main role of the government is to establish well-working rules and to exercise effective and transparent control while at the same time revoking unnecessary regulations. This can make it much easier to partner with large market players in consumer-oriented initiatives, Ganev says in conclusion.