Serbia: Consumers Bear Brunt Of High Retail Prices; Government Intervenes

By Katica Djurovic and Igor Jovanovic

A regulation to make food more affordable has — for now at least — trimmed the trading margins on flour, sugar, cooking oil, milk and meat to 10%. But it is drawing protests from the Employers’ Union, which warns that the regulation will lead to the shutdown of many small and medium-sized businesses.

The rule, which went into effect this month and expires on July 1st, cut trading margins on some foods from as much as 30%. Serbia has some of the lowest wages in Southeast Europe, and residents on average spend half their salary on consumer goods.

Officials hope that cutting the margins will boost demand and allow people to buy more.

“No one is happy when administrative measures are needed to regulate the market, but there are situations where it is impossible in any other way to establish balance in the market, where the lack of real competition is reflected in high margins,” Minister of Agriculture and Trade Dusan Petrovic said.

Some analysts doubt that the regulation will produce long-term results.

“In Serbia, food is mainly expensive because of costly production, i.e. low productivity,” Marica Vukovic, an editor in Beta News Agency’s economics department, told SETimes.

“When it comes to basic agricultural products, they are more expensive than in Europe, because state subsidies are lower. [While] all countries subsidise agriculture to protect the citizens from shortages, the agricultural budget in Serbia is smaller both in nominal and percentage terms compared with GDP in other countries.”

She says the main reason for the regulation’s adoption is the upcoming election campaign. Serbia must hold a general election no later than May.

Nor does she does not expect the regulation to yield essential results, given its limited duration. Beyond that, “Savings in the household budget will be felt only by larger families, which buy big quantities of bread, milk, yogurt and cooking oil,” Vukovic said.

Economist Mahmut Busatlija of the Economics Institute in Belgrade does not expect any major results either.

“Food in Serbia is expensive because of the monopoly on its import. Only a few companies are operating in that field and they often do not procure food from European producers, but rather from some duty free zone brokers. This makes the prices of imported goods seem unrealistically high and the money is drained from Serbia,” Busatlija told SETimes.

The average salary in Serbia is about 376 euros, with inflation of 8.1%. Unemployment is about 20%. In Southeast Europe, only Macedonia has an average salary lower than Serbia. By comparison, Slovenia’s average wage is 975 euros, and Croatia’s wages average 715 euros.

“The price of the products in our supermarkets is influenced by the market: it depends on the type of product, brand, category, purchasing power and other expenses such as transport, electricity, storage,” Slobodan Rudan told SETimes. He is director of operations at the Delhaize Group, which operates the retail chains Maxi and Tempo in Southeast Europe.

Before price controls went into effect this month, the price of sugar in a Serbia supermarket averaged 111 to 113 dinars per kilogram, about 10% more expensive than in Podgorica and Skopje. Milk prices in major cities of the region range from 70 to 80 euro cents per litre, while in Serbian markets consumers paid from 85 to 90 euro cents.

The Consumers Protection Movement says Serbian merchants decide on the level of trading margins, which is highly chaotic due to insufficient control.

“Everyone arbitrarily determines margins. Therefore, the same product can have a different price in a Belgrade supermarket and in a small shop in central Serbia,” Petar Bogosavljevic, Movement director, told SETimes.

According to Bogosavljevic, when purchasing power declines, merchants tend to lower the prices and margins, in order to attract consumers and increase profit. In Serbia however, prices consistently rise, he said.

Bogosavljevic says the main reason for constantly increasing margins is the lack of competition. The arrival of new mega-markets in the country would mean more competition, lower margins and lower prices.

“That is the price we pay for the retailer’s monopoly, which enables them to reap high profits without fearing competition,” Dragan Milicevic, author of the analysis of retailers’ margins in Serbia, told SETimes.

Those most unhappy with the high prices are consumers, many of whom are willing to hit the road in search of better deals.

“I’ve been travelling occasionally to Timisoara in Hungary to buy electronics, clothes, shoes and food for my household. Retail chains in Hungary are cheaper than in Serbia and I’ll keep going to Hungary until the cheap supermarkets arrive in Serbia, or until domestic merchants lower the prices,” Vesna Vlajic, a retired bank accountant, told SETimes.