On September 22, 2016, the Cabinet of Ministers of Ukraine made a decision that has been awaited only by the most optimistic representatives of the business community: with its Resolution “On Implementation of the Pilot Project to Temporarily Restrict the Application of Resolution No. 1548 of the Cabinet of Ministers of Ukraine dated December 25, 1996 and Resolution No. 1222 of the Cabinet of Ministers of Ukraine dated October 17, 2007,” the government has launched a pilot project lifting the administrative regulation of prices for the so-called socially important food products.
The launched pilot project will suspend, with effect from October 1 and until the end of the year, the state regulation of food prices and, in particular, suspended will be the following:
- markup thresholds for the whole range of products, including flour, bread, pasta, cereals, sugar, beef, pork and poultry meat, cooked sausages, milk, cheese, sour cream, butter, sunflower oil, chicken eggs, and infant food;
- production profitability thresholds for a number of products, including diabetic flour, bread and bakery products and packaging of food products subject to state price regulation; and
- wholesale prices by declaring changes in prices for a range of products, including flour, buckwheat, pork, beef, poultry meat, cooked sausages, milk, cheese, sour cream, butter, chicken eggs, sugar, and sunflower oil.
While implementing the pilot project, the Ministry of Economic Development and Trade (“MEDT”) will monitor the price trends for the aforementioned products to confirm or disconfirmthe expediency and economic feasibility of cancelling the state price regulation.
A proactive position of the market players and a number of researches resulting in a conclusion that regulated prices grow faster, including due to the increased costs incurred by businesses to administer the same, served as a prerequisite to the adoption of the Resolution. Furthermore, scaled-down production of socially important products, their shortage, lower profits compensated by increasing profit margins in other markets, and the general distortion of competition are only some of the negative manifestations of the government’s interference in pricing issues, which is in itself a relic of the command economy of the Soviet era.
Therefore, it only remains to welcome the steps taken by the government. The experiment launched by the MEDT opens up the road for reducing the administrative pressure exerted on all FMCG market participants: retailers, suppliers, and ultimate consumers, and also enables to reduce the government’s interference in economic processes. Generally, such deregulation will surely help more effectively respond to changes in the markets, which will lead to the increased competitiveness and, consequently, enhanced attractiveness of Ukraine as a whole. We hope that the arm-wrestling between the “iron hand of the state” and the “invisible hand of Adam Smith” will end with a fair victory of the latter, meaning the full cancellation of the price regulation for the aforementioned product groups.