Kepuladze: food price commission failed to find cartel evidence, offered no real solutions

The 100-page conclusion of the parliamentary commission on the causes of rising food prices in Georgia has become the centre of political and economic debate. Although initial expectations were linked to exposing cartel agreements, the document failed to confirm the existence of direct collusion in the market, which has led to differing opinions within the ruling team.

In an interview with Front News, Giorgi Kepuladze, chair of the board of the non-governmental organisation Society and Banks, assesses the commission’s findings, arguing that the focus should be on reducing economic risks and strengthening competition rather than introducing strict regulations. He also addresses apparent inconsistencies between the report and earlier statements by Prime Minister Irakli Kobakhidze, the potential risks of artificially raising the minimum wage and the challenges of implementing unemployment insurance in Georgia.

Q. The parliamentary commission did not identify cartel agreements, although the conclusion mentions “long and inefficient supply chains”. How would you assess this conclusion? Is it possible that a lack of competition in the market is still a cause of price increases, even if direct agreements were not confirmed?

A. First of all, we should recall why this commission was created. We all remember Irakli Kobakhidze’s statement and presentation in December, where he said that prices and mark-ups were very high. In the end, the commission concluded that during discounts, prices are often lower than those indicated — meaning they are cheaper than they appear at first glance.

It turned out that almost everything Kobakhidze spoke about was rejected. In the 100-page conclusion, we read that there is no problem with competition, nor with margins, nor with excess profits. This raises the question: why was such a commission created at all? Such conclusions should be written by analytical centres, not parliamentary commissions, which are supposed to take effective steps rather than conduct academic research. This used to be done by NGOs, but now the commission has taken on the function of a research institute, which brings no real results for the population. It is clear that supplying products in Europe is easier than in Georgia, but this requires action. What we expect from the government is concrete steps, not theoretical research.

Q. The commission refuses “direct and strict intervention” in the market and proposes “soft regulation”. What kind of economic levers or “soft regulation” methods could be effective in Georgia to stabilise prices without turning into harmful administrative control?

A. The Government is doing the right thing by not interfering in the market and limiting itself to statements. I have said many times that direct intervention will lead to price increases and shortages. It is good that this is reflected in the commission’s conclusion. The Government needed some kind of document to begin acting legally. But from this conclusion, we only learned that small and medium-sized businesses need more support. For 14 years, we have been hearing about programmes supporting small businesses — Produce in Georgia, Plant the Future, agricultural projects. If support is still needed today, it means all that money has been wasted.

Q. Does this mean there is a division of opinion within the Government regarding price regulation? Politically, what does this conclusion mean? Did it end up refuting the Prime Minister’s statement rather than strengthening his position?

A. Yes, a certain difference of opinion has emerged within the government. Although for me they are still one team managed from a single centre, it became clear that there is disagreement on social issues. The People's Power movement openly said they would not support the conclusion in this form. This means that either Kobakhidze had incorrect information, or the issue was unnecessarily exaggerated.

The Government should promote competition. If possible, it should reduce value-added tax on food and, first of all, reduce risks in the economy. Due to our geopolitical location and occupied territories, Georgia is not as low-risk as Eastern European countries. When risks are high, businesses try to insure themselves by increasing profit margins, which is ultimately reflected in prices. Therefore, it is necessary for the free trade agreement with Europe to function more effectively and for citizens to have greater optimism.

Q. The conclusion mentions that the sector has high operational costs. How accurate is this argument and what should the state do to make local production and distribution more competitive?

A. Operational costs — transport, maintaining branches, salaries — are indeed high due to the risks present in the country. When businesses are not confident that they will receive a fair decision in court in case of disputes, all of this increases costs. A predictable environment is needed. As for local production, despite “billion-scale projects”, we have not achieved real results. Almost a third of the population is employed in agriculture, but it generates only six–seven per cent of gross domestic product. Georgia cannot even feed itself and imports basic products from neighbouring countries. It is the Government’s responsibility to increase people’s incomes, because due to our low income levels, we perceive prices as particularly painful.

Q. One of the opposition’s main proposals is to increase the minimum wage to ₾1,050 (about $392). What risks does this pose from an economic perspective?

A. ₾1,050 is quite a high threshold. I am not in favour of such left-wing approaches. For example, if two cleaners in a hotel earn ₾600 ($224) each and the minimum wage is set at ₾1,000 ($373.22), the business will have to dismiss one to increase the other’s salary. This will increase unemployment or lead to higher prices. This is more of a populist statement, as more than half of employed people today earn less than ₾1,000. Such artificial intervention will push businesses into the shadow economy — employing people informally without contracts. Income growth should come from economic development, not new regulations.

Q. The opposition is also calling for the introduction of “unemployment insurance”. How realistic is this mechanism?

A. I will answer with an example: one insurance company tried to sell such packages, but the project was shut down within a month because it turned out to be too unprofitable. In our reality, it often happens that a person is formally dismissed, receives insurance and at the same time works elsewhere. In a country where unemployment is high, this mechanism would actually encourage unemployment. When people know the state will support them anyway, their motivation to work decreases. We see this even with social assistance. This is a model of wealthy, developed countries (Germany, Scandinavia) and we have not reached that level yet.