Why are prices in Belarus higher than in neighbouring countries?

The expert has told in the interview to Euroradio that 80% of prices in our country are regulated by the State. In spite of this, we are among the leaders with regard to price increase. The government can solve the situation in case they manage to borrow some 5 billion by the end of the year...

Euroradio: Going abroad, one always notices that prices of Belarus are often higher than in the neighbouring countries. For instance, once we made a report on where it would be more expensive to lay a festive New Year table - in Minsk or in Warsaw. Minsk turned out to be more expensive. Why is it so?

Leanid Zlotnikau: I cannot say how the situation is changing this year - there is another increase of prices for rye, milk products and other goods... It is highly likely that the prices equalize. But in the previous years, I agree, prices were higher in Belarus. It is so because of the higher taxes for manufacture of goods here, than in the EU countries.  

I will give you an example to illustrate what I'm saying. Lets imagine we are solving a problem - how much oil is spent to manufacture and use a kilogram of meat in Belarus? 

Our yeld capacity is approximately twice lower than in the EU.
Fuel consumption of Belarusian tractors per hectar of the rally (taking into consideration that part of the machines is not very effective) is a bit higher than in the EU. Thus, it is necessary to plough a twice bigger area than in Germany or Denmark to get one feed unit.

Then, we know that in order to receive a kilogram of weight gain of cattle or swine, Belarus spends twice more feed units than in the European Union. Thus, to get meat in alive weight we need 4 times more energy. Then goes food preparation. In the end of it all, we see that we need 6 times more oil products to prepare and eat a kilogram of meat than the European countries do.

Belarusians should give away 8 times more oil to eat a kilogram of meat than the neighbouring countries

It is known that our agriculture is highly ineffective. If we take a whole industry, the energy consumption would be three times higher. If we take the gross domestic product on the whole, the official energy consumption for one GDP unit will be 2-3 times higher. 

It turns out when we buy oil for the same prices as in Europe, we need to spend 8 times more to eat a kilo of meat! So these oil products should reflect in prices for meat.

This is the answer. The reason for high prices is low level of efficience of technological processes in Belarus.

So it turns out the prices are high even though the salaries are low...

There is a concept - import capacity of production. Whatever we produce - cups, footwear, clothes, meat - in general, in order to produce a production unit we need to import 50% of its primecost. Thus, if we take the primecost of goods produced in Belarus it turns out half of the expenses are spent on import. The country is small, there is no such variety of raw materials that is needed for manufacture. We buy plenty of knots, spare parts, machines abroad. The energy is also mostly bought...

Thus, if there are such big expenses for buying raw materials, the primecost is also very high. Even if we decrease the salary share in this primecost almost to zero, the price will still be very high because of the import capacity. 

You say the basic reason for high prices in Belarus is inefficiency and technological backwardness... What about such factors as absense of competition and regulation of prices? Does it also influence?

Yes, sure it does. It's not only the level of pure technologies - processing of raw materials, semi-manufactured goods - that's important... It's also the level of government, other civic system, attitude to private property - we are backward in all that in comparison with developed countries.

When I say "civic system", I mean whether it is market regulation or state regulation. Because, if the State is the one who decides which goods to produce and how many, how can there be competition? Another civic system is also the reason for higher prices.

In fact we pay for food 25% more than it actually costs in the store

The State subsidies agricutural manufacture via different channels, officially it takes 2 billion dollars a year. That means, a family of 3 people allegedly receives subsidies of 600 dollars a year. However, in fact this family pays them back by buying building materials (which includes different taxes), by repairing an automobile (our prices for spare parts are 2-3 times higher than abroad). Different taxes, which are then taken by the State, are hidden in these spare parts and building materials.

After that, the State covers some expenses of agricultural organizations (for example, for soil deoxidation) from the budget. It provides mineral fertilizers cheaper than the primecost, etc. All this in the end of it all is paid by the population.  Thus, we pay for food 25% more than it costs in the store. 

Without realising that…

Yes, people don't know it..

Which prices are regulated by the State and are there many of those?

There are a lot of such prices. For example, all the prices for building works are set by the State. The so-called purchase prices for agricultural products are also set by the State... Housing and utilities services also have their prices directly set by the State, the same with transport, petrol. Prices are directly set by the State for some food products - the so-called socially important goods. And the main thing is regulation of prices of enterprises-monopilists, which we now have about  900. They have no right to increase prices more than a certain limit.

Prices for imported goods are regulated the same way, wholesale and retail bonuses should not surpass 30% of the price. Each year the government sets the so-called estimated figures, which include level of price increase. The prices should not increase by more than 8% this year. So each executive committee watches the prices not to increase, by, let us say,  0,8% per month.

To cut a long story short, we can say 70-80% of prices are regulated by the State, directly or indirectly.

How this factor influences the average level of prices in the country?

If we take statistics on CIS countries or Europe, this year we are among the leaders with regard to price increase. That means, it doesn't help. The State increases prices itself, it's not not the market. The prices grow faster then they would if there was competition.

What can be done so the prices do not grow, and is anything being done in this regard now?

In is known from the theory that there is the so-called goods and services basket, which is the basis for counting consumer prices. If this basket costs the same this year as it did last year, that doesn't mean that prices for separate goods remained unchanged. Prices for some goods can go up, prices for some other goods can go down. But the prices for the basket in total remain stable. In this case they say the price level remained unchanged. Thus, governments of other countries regulate the price level...

Naturally, prices cannot be totally free. For example, in China 5% of the prices are regulated by the State, 95% are free. Some prices are regulated in Poland, Lithuania. However, there are very little of those - 1-3%... Naturally, there is no such concept as socially important goods there. Some prices are regulated, but that doesn't influence the situation much - 90% of the prices are free. And the State regulates not the prices, but the price level, which can be done at macro-level - there is a monetary policy, which helps to regulate the price level, to put it simple, to watch the money mass in the turnover. 

National or Central bank of the country regulates the money mass by its own instruments of monetary policy. For example, the money mass in Belarus has grown during the last 4 months. At the moment of August 1 this year the money mass was 42% more than at the same moment last year. It has started growing since May and has gone on and on.

Just imagine - the quantity of goods produced by the country and sold to the population does not increase, bu the money mass does. That means, there are more money in the turnover, people go to markets with more money, but the quantity of products is the same. Naturally, the prices go up. When salaries and pensions increase via printing more money, prises increase. We should now have inflation of up to 30%.

We can make a conclusion basing on your words, that prices should go up in our country now, but as we have elections coming soon, everyone knows the government intends to do everything so that nothing unpleasant happened with the population…

Yes, this happens in any country.

Is it possible to tell now what to expect with regard to prices after the elections?

To tell that we need to know the whole economical situation - both internal and external. If the government manages to borrow some 5 billion till the end of the year, it will solve the situation and the prices would not grow that rapidly…

Now they are obviously growing. The government borrows a little less than before, but increases salaries. Thus, the prices get higher, especially for products necessary for the people - butter, sugar, communal services… It is difficult to say whether there is the 6% increase in comparison with the previous year, as the National Statistics committee says, but the prices for a series of important products grew even more. However, if we did not borrow money from abroad, which then turns into gold and foreign currency reserves and slows down prices increase by such mechanism, the inflation would have been much higher.

As for inflation and price increase etc., we can speak about them in the framework of the market regulated economy, but these contemplations would not always meet the reality in the framework of the command economy…

It is known that selling of butter inside our country is not profitable. Naturally, if we had market economy, the price for butter would be higher than it is now. Purchase prices for milk would also be higher as agriculture should have some profitability index to buy the machines, not to take them in leasing from the State. Prices for food would be much higher if we now had an open market economy.

In the beginning, yes…

Yes, at first. But then competition would shake them down, as everywhere, if there was any. However, practically we have no competition.