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Potential impact of reduced energy costs on food prices in Serbia

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Serbian business owners could expect a reduction in gas and electricity prices starting May 1st, as announced, but whether this will affect food prices remains uncertain. The food industry heavily relies on energy prices, with expensive electricity and gas being leading factors in the rising cost of groceries in recent years due to the ongoing energy crisis. However, according to a survey conducted by “Politika,” consumers might find it difficult to expect a simultaneous drop in prices with the new energy pricing. Representatives from the bakery industry acknowledge that gas and electricity are crucial elements in their operations. However, the challenge lies in individual contracts between producers and distributors, spanning one, two, or three years.

Zoran Pralica, President of the Union of Serbian Bakers, emphasizes that these contracts’ expiration timing will determine the potential for price reductions. He underscores the industry’s heavy reliance on energy, essential for industrial furnaces, production, and transportation. Similarly, meat and dairy industries consider energy costs a significant financial burden. While these sectors consume considerable hot water, they also operate on individual contracts, raising questions about contract expiration. However, industry insiders are skeptical that this will lead to significant price reductions.

They doubt that any producer will lower prices solely due to cheaper electricity. They suggest considering whether retailers will reduce margins if producers decrease prices. Following announcements from the Serbian Electric Power Industry (EPS) about changes in electricity pricing methodology for industry, the government also announced reduced gas costs for companies for the same reason. The implementation of a new pricing methodology for industrial electricity is expected on May 1st. While its impact on lowering prices remains uncertain, reduced prices are likely as industrial energy prices are considerably lower on the free market compared to a year ago.

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A decrease in prices would mean lower revenue for EPS and other commercial electricity providers in Serbia. However, this is partially offset by last year’s household electricity price increases, which will remain unaffected by market price declines.

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