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High food prices destroyed demand and production

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The production of the food industry in August this year was 3.8 percent lower than in the same month of 2022. If we compare production in the first eight months of this year with the same period last year, the drop in production is about one percent.

The production of the food industry is important, because it is the largest branch with a participation of 15 percent in the processing industry, which is again the most important part of the overall industry.

As stated in the latest edition of Macroeconomic Analysis and Trends (MAT), in August, the largest year-on-year decline in production was the production of dairy products, by 8.2 percent, and the production of other food products, which is mainly sugar, by as much as 14.9 percent.

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If we look at the processing and canning of fruits and vegetables in the first eight months, the year-on-year drop in production amounts to 9.6 percent.

Ivan Nikolić, editor of MAT, notes that the inflation of the products of these industrial branches is the highest.

According to the announcement of the Bureau of Statistics, the inflation of the products “milk, cheese and eggs” in August compared to last August amounted to 25.5 percent. If we look at the first eight months, the year-on-year inflation of products from this area is as much as 35.8 percent.

The annual growth of fruit prices in August, which refers to fresh fruit, is 8.6 percent, and vegetables as much as 29.8 percent.

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Did producers take advantage of the general rise in prices

These are the products whose prices have risen the most in the previous year in the area of ​​food, whose inflation amounted to 17.2 percent. No other group of food products has risen even close to this compared to last August.

“When production data and price data are matched, we see that buyers have reacted to the high price increase and that the demand for these products has decreased. We observe the effects on production, but traders report the final prices, so without a more serious analysis it is not possible to say who is responsible and to what extent for the increase in prices, traders or producers”, notes Nikolić, adding that in any case the increase in prices led to a fall in consumption.

“The greediness of producers and traders quickly returned like a boomerang,” he said. Nikolić points out that producers and traders can adapt to this drop in consumption by reducing prices, which would then restore demand and consequently lead to an increase in production.

“That would be a better answer for the economy.” Another reaction would be to accept the existing demand, but that would mean that they would suffer losses or would have to reduce production capacities and workforce,” Nikolić points out.

Prices, above all, of food products in the last two months have been in the center of attention not only in Serbia, but also in the region. Almost all governments in the region have created some variant of the program to limit the prices of certain basic life items in order to make the consumer basket cheaper for citizens, whose prices have been running wild for the last two years.

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