EBA says government’s food price caps violate Ukraine’s agreements with IMF

21 January, 11:23 AM
Capping prices on some products may lead to their disappearance from store shelves, according to a statement by the European Business Association. (Photo:Neil Hall / Reuters)

Capping prices on some products may lead to their disappearance from store shelves, according to a statement by the European Business Association. (Photo:Neil Hall / Reuters)

The European Business Association (EBA) has called on Ukraine’s government to scrap plans for price caps on a range of food products, saying the move would violate the country’s agreements with a crucial financial backer – the International Monetary Fund.

EBA members are concerned about a decision by the Cabinet of Ministers of Ukraine – Resolution No. 1 of Jan. 12, 2022 – to set a cap on markups of certain foods of no more than 10 percent for duration of quarantine.

“The implementation of this regulation will require businesses to adapt internal processes, amend agreements with suppliers, and adjust other processes at enterprises in order to ensure the further uninterrupted provision of consumers with socially significant goods,” the EBA said in a statement.

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“At the same time, the regulation does not provide for a transitional period for the implementation of its provisions and requirements, which would provide some time to properly prepare the industry for regulatory changes. It is therefore likely that this may lead to the suspension of the sale of these food products until such time as all the processes of retail trade are established, and businesses understand the procedure for pricing.”

The EBA also said that additional clarifications were required, including:

– a definition of the term “wholesale release price for goods”;

– a set of rules for calculating the allowed markup level of 10 percent;

– specification of the list of goods subject to the regulation.

“It should be noted that business absolutely supports the need for reasonable prices for significant goods in the country,” the EBA statement went on. “However, the increase in food prices is not due to an increase in the level of trade markups, but to an increase in retail prices for such goods on the part of manufacturers, who, in turn, are forced to raise prices due to rising prices for energy, raw materials, utilities, etc.

“Moreover, in 2014, Ukraine, when signing its Memorandum with the IMF, admitted that the legal and regulatory framework in Ukraine is overly complex, and this imposes unnecessary costs on business, and that it realized the need to take actions to improve the business climate. Therefore, in 2017, state price regulation was abolished.”

The EBA appealed to the prime minister, the Economy Ministry and the Agriculture Ministry not to return to the “manual management of business processes” and to cancel the resolution of the Cabinet of Ministers.

“If it is impossible to do this in any way, then postpone its entry into force at least until March 1, 2022, but not before a meeting is held with representatives of the retail food market, and clear explanations about the procedure for the resolution’s implementation are provided,” the EBA said.

As reported earlier, the Retail Association of Ukraine, Metro Cash and Carry, as well as the ATB supermarket chain have issued statements opposing the government’s resolution on price regulation.

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