PM attacks retail chains over rising prices (The Slovak Spectator)

Richard Ďurana z INESS sa pre Slovak Spectator vyjadril k tvrdeniam
premiéra Fica o zneužívaní postavenia obchodných reťazcov na zvyšovanie
cien potravín. Ceny určujú externé faktory mimo Slovenska, ich rast je
sprevádzaný rastom v celej EÚ a regulácia neprinesie žiadaný efekt.

PM attacks retail chains over rising prices (The Slovak Spectator)

The
Government of Robert Fico is changing the law on retail chains, with the prime
minister accusing the country's retailers of price gouging.

“There are
practically no effective tools that would limit the abuse of economic power by
the chains,” he said, as quoted by the Pravda daily on October 15.

“One of the
main reasons why the prices of some basic foods went up is the abuse of
economic power by some retail chains. It is not right that retail chains keep
most of the profit on the goods that are sold.”

The head of
the Coop Jednota Bratislava supermarket, Adrián Ďurček, strongly denied Fico’s
criticism.

“The reason
for the price increase is neither an attempt to strike it rich, nor
speculation,” he was quoted in the SME
daily on October 15. “The prices were increased by our supplier, without any
chance to negotiate them.”

Slovak
consumers are already paying more for bread, eggs and milk, and food prices in Slovakia are
likely to continue climbing by 10 to 20 percent, the Slovak Chamber of Food and
Agriculture said.

Farmers and
retailers say shrinking grain stocks, natural conditions, more demand from
developing countries and the production of bio-fuel are to blame, leaving them
with no choice but to pump up their prices.

“Neither
the domestic farmers, nor the food producers are the ones who inflate the
prices, but the global market, which Slovakia became part of after it entered
the EU,” Stanislav Nemec, spokesman of the Slovak Chamber of Food and
Agriculture, told The Slovak Spectator.

“We know
that the rise in food prices is a global trend,” Fico said. “However, we will
not allow anyone to try to make a fortune on it.”

Analyst
Ondrej Dostál, head of the non-governmental M.R. Štefánik Conservative
Institute, said it is nonsense to blame retail chains for the rise in prices.
Food prices have increased in other countries, not just in Slovakia, he
said.

Instead,
Dostál thinks retail chains try to keep food prices as low as possible.

“Chains
strongly pressure their suppliers so that they can offer their clients the
lowest possible prices,” he told The
Slovak Spectator
. “This is evident from the fact that in Bratislava,
for example, where the general price level is higher than in other places in Slovakia, food
prices are lower than in the rest of the country because there is bigger number
of retail chains.”

The head of the Institute of Economic
and Social Studies (INESS) Richard Ďurana, agreed that Fico’s criticism of the
chains is neither true, not justified.

“Food prices are influenced by many external
factors,” he told The Slovak Spectator.
“We cannot eliminate a lot of them in Slovakia
– low corn yield in Ukraine
or Hungary, growing demand
from China,
using corn for producing bio-fuels, or others.”

Ďurana also pointed to the basic rule of
business for selling any good or service: the profot margin of every
participant in the chain of sale depends on their ability to satisfy clients.

“So an inadeqaute profit margin is proof that
Fico* has not understood the basic economic principles,” he said. “If the
prime minister has a suspicion about (retailers) abusing their position on
the market, he can file a request to the appropriate institution, which is
the Anti-trust Bureau.”

The way to lower food prices may be cutting the
value-added tax, which is 19 percent in Slovakia, Ďurana said.

“The criticism is also absurd for this reason –
the state gets a certain ‘profit’ from every item of food that is sold,
amounting to 19 percent,” he said.

Fico
claimed that Slovakia’s
euro adoption could be delayed because of the retail chains.

“This is
not just about people, but also about the strategic interests of the state,” he
said.

“Moreover,
if anyone intentionally increases these prices, they threaten the government’s
– and the whole country’s – goal to adopt the euro in January 2009, as the
raising of prices can have a negative impact on the inflation rate.”

That line
of thinking is completely wrong, Dostál said. When euro introduction is considered,
a country’s inflation is not evaluated on its own, but in comparison with the
inflation in other eurozone countries.

“So the
inflation caused by higher food prices in Slovakia will be compared to the
inflation in the eurozone, which is affected by higher food prices in other
countries,” he told The Slovak Spectator.

Ďurana also refuted the prime minister’s
claims.

“Food makes up less than one quarter of
household expenses, so the growth of inflation cannot be blamed on the profit
margin of retail chains alone,” he said. “But according to the bank analysts,
the price increase does not represent a threat to euro adoption.”

The
retailer’s representatives also dismissed Fico’s criticism.

“We support
all legal arrangements that comply with EU legislation,” said the president of
the Slovak Trade Association, Pavol Konštiak.

But he said
it’s important that the law does single out specific groups.

“If the law
is supported to apply to the retailers, what about producers or processors?” he
said, as quoted in the SME daily on
October 15. “Why do we bypass the processors, and say that it is just retail
that is responsible for everything?”

Analysts
say Fico’s statements imply that he is trying to regulate food prices.

“Attempts
to regulate food prices in any way would mean a regression to the status quo
before the November 1989 and the Velvet Revolution,” Dostál said.

“However,
it may be that Fico is only trying to get the public’s attention, or to scare
retailers a bit.”

Ďurana said that the best ‘remedy’ for high
profits would not be regulating food prices, but rather competition, which
tends to push prices down.

“Casting doubts on market mechanisms, which
Western countries owe for their current prosperity, send no positive signals to
domestic and foreign investors,” he added.

Dostál said Fico confirmed with these
statements that “he is a populist inclined to the communist way of thinking.”

“He noticed
the rising food prices, and he sensed that people did not like it,” he said.
“In the common knowledge, it is deeply rooted that prices are set arbitrarily
by retailers, and that if they increase prices, their aim is to make the
biggest profit at the expense of their clients.”

The second
reason why the PM turned his criticism to retail chains is that Fico’s style of
politics is based on looking for an enemy and confronting them, Dostál said.

“One time the enemy is private health insurers, the next
time it is the pension fund management, then it is employers as a whole, and
then maybe journalists,” he said. “Now, the time has come to attack retail
chains.”

* In print version word "person" was used instead of "Fico", which completely changed meaning of the sentence.

By Ľuba Lesná

Spectator staff

The Slovak Spectator,
22.10.2007

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