Why food is so expensive in Kosovo?

Food and beverage prices in Bulgaria are half of what they are in Kosovo. Whoever has been skiing in Bansko or studying at the university in Blagoevgrad knows that the lower prices are not a consequence of Bulgaria being a poor country. So, how is possible that prices in Bulgaria, a EU Member State since 2007, are lower than in Kosovo? There are two main reasons.

One, a large portion of the food and beverages consumed in Bulgaria, are actually produced in Bulgaria. Two, there exist fierce competition among retailers, including large international wholesalers. The two reasons are important in their own right, but they are also deeply intertwined.

If the ambition is to reduce food and beverage prices in Kosovo there is much to learn from the Bulgaria case. But be aware, it is not an easy road to maneuver yet it’s a virtuous path that will lead to leaps in economic growth and employment in Kosovo, and to significant improvements in the wellbeing of Kosovo citizens.

Let’s first look closer at domestic production. When Bulgaria threw off the chains of communism in 1989, the state-owned food-processing sector began a fast descent into disarray. Local output fell. Imports boomed. Poor privatization killed off hundreds of food-processing factories. There was a time when Danish feta cheese and French yogurt were replacing Bulgarian bred and produced white cheese and ‘sour milk’ – the national treasures. Why? Well simply put, the Bulgarian producers, if they were still operational that is, could not deliver the ‘right’ price, quality and quantities. Sounds familiar to today’s situation in Kosovo, doesn’t it? Add to the micro-economic difficulties of Bulgarian producers, government policies and customs regulations that favored imports and importers. Customs officials grew rich, and so did a political elite and the importers, while the Bulgarian people grew ever poorer. In January 1997, as the government fell under the full weight of hyperinflation and social unrest, the average pensioner in Bulgaria could purchase two chickens for his/her pension per month. Nothing more. Enter reform and a determined path towards EU and NATO membership, which are both now achieved.

With the political future of Bulgaria cemented in Western institutions, large financial wealth that had been previously tucked away abroad returned to Bulgaria, and was invested in tourism (Sunny Beach, Bansko, etc.) and other productive economic activities, including food-processing. A large number of local food and beverage factories were sold to multinational food companies, such as Nestle (chocolates), Danone (dairy products), Carlsberg (beer). Government, at this point in time still without the financial resources to directly support business development, focused on ensuring a positive business environment in those early years of post-crash economy rebuilding.

Enter METRO Cash & Carry. Nobody has done more to improve the supply of food products in Bulgaria than this German wholesaler. Its entrance on the market in Bulgaria was transformational to say the least. It opened up the opportunity for Bulgarian producers to sell their products, not only through METRO’s wholesale shops in Bulgaria, but throughout its network of shops internationally. But there was a catch, and it was this catch that changed the Bulgarian food and beverage market forever. To be let in the door, to sell their products on the shelves of METRO, the Bulgarian food and beverage producers had to fulfill EU levels on food safety and food security (HACCP certification became compulsory, not because the state required it, but because the market demanded it!), the packaging had to be professional and so the labeling. And most important for us customers, the price had to be ‘right’, meaning much, much lower than what the producers were used to from selling on a small, and relatively protected market.

Some producers could not cope with the increasing costs induced by METRO’s requirements, while others flourished. As they managed to achieve a product quality that matched the imported goods, the Bulgarian producers had two competitive advantages – a taste that was familiar to the customers, and lower transport costs, resulting in a competitive end price!

At this time, the state started to invest in supporting the private sector, and made the most of available donor support to strengthen the internal performance of key producers, in key sectors of the economy. Suddenly, the impact of access to EU agricultural and rural development funds could be seen in the countryside, as new fruit and wine orchards were planted, idle farm lands were again cultivated. As demand for locally produced food grew, supply did it’s best to keep up.

In the years that followed METRO’s entrance, other international retailers, such as Lidl, Kaufland, Carrefour and Billa followed, and a wide variety of local supermarket chains sprung up, positioning themselves closer to the end customers. As a result, the Bulgarian customer now enjoys a ‘real’ choice in deciding where to shop, and what products to buy, as a result of ‘real’ competition.

To achieve a similar positive situation for consumers in Kosovo, two fundamental steps have to be taken in order to generate desirable  long-term improvements. One, importers and retailers of food and beverages, and other Kosovo enterprises for that matter, must be incentivized to invest in and manage their own food-processing operations. With the recent wave of free trade agreements, there is little room to ‘support’ local manufacturers through protective measures, rather the focus should be on offering financial incentives and technical assistance to those importers/retailers/enterprises willing to move into production. Two, Kosovo authorities should wholeheartedly welcome multinational retailers to invest and operate in Kosovo. The presence of retailers such as Conad (Italian), Merkator (Slovenian) and Carrefour (French) in Albania has had the same positive impact on end prices and quality of food and beverages, as METRO et al. are having in Bulgaria.

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About Jakob Modéer

22 years of corporate and international investor experience as well as private sector development project management, consultancy in private sector policy and business advisory services, and direct consultancy to companies in South East Europe (and now a blogger on socio-economic issues)
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