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Armenia: Steep Price Rises “Artificial”

Experts blame hike in food costs on a heavily monopolistic economy.
Rocketing food costs are angering ordinary people in Armenia and giving the opposition a cause to rally around ahead of the presidential election next spring.

Although much of the problem is due to external factors, experts say that the rises indicate an economy that is excessively dominated on monopolies.

According to date from the National Statistics Service, the prices of bread and flour have increased by 24 and 29 per cent, respectively, since the beginning of the year. Other food products, such as animal and vegetable oils, have also been recording steep price increases.

“You never know what is going to happen tomorrow,” said Anahit Sarkisian, 40. “You wake up in the morning to find that prices have doubled overnight. You can’t stay calm when that happens.”

The increases have mostly been recorded since the end of the summer. Armenia has to import most of its food and agricultural products, making it vulnerable to price rises on international markets that have also affected other Soviet republics.

However, in Armenia the problem has been compounded by an anti-competitive arrangements involving numerous local business that have seen the price of vegetable oil and butter soar by an average of 80 per cent.

“It’s true that world market prices are growing, but in Armenia prices have at least doubled,” said Armine Akopian, who heads the analytical department of Armenia’s anti-monopoly commission. “In August, a litre of sunflower-seed oil was selling for an average of 556 drams [1.80 US dollars], whereas in October the price reached 950 drams [three dollars], even though customs levies have remained the same.”

Armenia has recorded double-digit growth figures for the past seven years, following the economic collapse that accompanied the end of the Soviet Union. However, poverty levels remain high and many complain that the benefits of growth have not been shared out.

The Armenian opposition says the hike in prices is a disaster for the whole population. Mher Shakhgheldian, a parliamentarian with the opposition party Orinats Yerkir, accused the government of doing nothing to address the problem.

“Of course, price rises are happening all over the world, but many states have tried to protect their citizens,” he told IWPR. “The state ought to take care of each of its citizens and combat these negative trends more actively.”

Shakhgheldian said big businesses were dominating the domestic food market and were forcing up prices. He argued that they should be paying more tax, while the tax burden for farmers should be eased.

The government’s anti-monopoly commission says it has no powers to regulate the food market, while the only state body with a mandate to do so, the Commission for Protecting Economic Competition, has no real leverage and confines itself largely to conducting research into the status of the market.

After monitoring retail sales of butter and sunflower oil, the commission uncovered evidence of collusion amongst one fifth of the market players. It fined 50 businessmen for unjustified price increases, ordering them to pay a sum equivalent to two per cent of their income in 2006. The total fine will not be more than 300 million drams (937,000 dollars).

Experts say the penalties being handed out at the moment are too mild.

“The current fines are small and do not remove the incentive for businesses to do it again, because the profits they earn from raising prices are far greater than the sums they lose by paying a fine,” said Abgar Yegoyan, head of the Consumer Rights Protection organisation. “Many importers brought in their goods before world prices went up, but they took advantage of the trend and their prices went spiralling upwards.”

Yegoyan suggested that the fine for complicity in anti-competition deals should be increased to five per cent of annual income, and the deadline for paying the fine should be halved from the current one month to 15 days.

The price rises are have already caused panic buying by consumers. In mid-October, Armenians rushed to buy sugar after the price rose, causing traders to further double or triple prices. Some shops were selling granulated sugar for 600-700 drams (1.84-2.15 dollars) a kilo.

One company, Salex Group, which is owned by member of parliament Samvel Aleksanian, imports 84 per cent of the sugar sold in the shops. After the company cut sugar prices in its chain of supermarkets, popular anger turned on other retailers for keeping the price high.

“The panic benefited owners of small retail outlets, because in one day they were able to sell an amount of sugar that otherwise would have taken them ten days to sell,” Ashot Shakhnazarian, head of the commission, told journalists. He said that country had enough stocks of sugar to last the next six months.

The Central Bank, which has the task of keeping inflation down, said it was keeping to its target of holding the rate of consumer price rises at around four per cent, give or take 1.5 per cent.

The price rises are hurting the Armenian authorities as they gear up for a presidential election next year in which Prime Minister Serzh Sarkisian will be the official candidate.

“The authorities are the first to suffer from an artificially-created panic on the food market, because it triggers popular discontent,” said deputy prime minister Hovik Abrahamian.

The government has already pledged to increase pensions next year by 65 per cent and family benefits by 20 per cent, to reach 21,842 (68.50 dollars) and 21,089 drams (66 dollars) per month, respectively.

Minister of labour and social issues Agvan Vardanian told IWPR the move was meant to cushion the population from the effect of rising prices. He said the government hoped in future to make benefits index-linked, as 24 per cent of the population count as poor and seven per cent are below the poverty line.

“What’s the use of raising pensions when prices continue to rise?” complained 65-year-old cleaner Zoya Nikolayevna. “I still have to work to support myself. The New Year holidays are approaching, when everything will cost lots of money again, and you want so much to give yourself a treat now and then.”

Naira Melkumian is a freelance journalist in Yerevan.

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