TURKMENISTAN: MARKET BASKET COSTS CONTINUE TO RISE

UNCLAS SECTION 01 OF 02 ASHGABAT 001263 SIPDIS SENSITIVE SIPDIS STATE FOR SCA/CEN, EEB E.O. 12958: N/A TAGS: PGOV ECON SOCI PREL SUBJECT: TURKMENISTAN: MARKET BASKET COSTS CONTINUE TO RISE REF: ASHGABAT 1253 ¶1. (SBU) SUMMARY: A recent market basket price comparison showed that many basic market prices have continued to increase sharply over the last two months, with milk scoring the biggest increase (33%). While the reasons for this rapid increase vary, the higher cost of food globally, a shortage of domestic supplies, and barriers against food imports are certainly factors. While many local residents are complaining about these increases, post is also finding evidence that people are adapting by changing their dietary habits. Post still sees no sign that the situation is reaching the point where the higher prices will cause widespread discontent. END SUMMARY. ¶2. (SBU) The most recent routine price check conducted by post revealed an average market basket price increase of almost 14% over prices for the same items in September. As demonstrated in the chart below, prices of many key food products substantially increased. The food staples exhibiting the most dramatic price increases include milk (a 30% increase),eggs (a 28% increase), butter (a 25% increase),flour (a 25% increase),and chicken (a 22% increase). We have been told that prices have risen similarly in cities outside of Ashgabat. Not reflected in the market basket price comparison is the approximate 35% increase in the price of locally grown seasonal fruits and vegetables this year, including tomatoes, cucumbers and cabbage. ¶3. (U) Price comparison: Food Item Price (11/07) Price (9/07) Percent Bread (1 home-made) 6,000 Manat 5,000 Manat 16.67 Flour (1 kg) 16,000 Manat 12,000 Manat 25.00 Rice (1 kg) 15,000 Manat 17,000 Manat -13.33 Tea (1 kg) 80,000 Manat 80,000 Manat 0.00 Butter (1 kg) 120,000 Manat 90,000 Manat 25.00 Vegetable Oil (1 lit) 45,000 Manat 40,000 Manat 11.00 Sugar (1 kg) 16,000 Manat 14,000 Manat 12.50 Beef (1 kg) 50,000 Manat 50,000 Manat 0.00 Lamb (1 kg) 45,000 Manat 45,000 Manat 0.00 Chicken (1 kg) 90,000 Manat 70,000 Manat 22.22 Milk (1 lit) 15,000 Manat 10,000 Manat 33.33 Eggs (ten) 25,000 Manat 18,000 Manat 28.00 PRICE INCREASES IN THE EUROPEAN MARKET AFFECTS FOOD IMPORTS ¶4. (U) According to retailers at Ashgabat food markets, price increases for food items in Europe -- the source of many of Turkmenistan's basic food imports -- caused the increases in butter, flour, sugar and vegetable oil prices. The higher flour price was reflected in the increased price of homemade bread sold at markets. AVIAN INFLUENZA PREVENTION MEASURES CONTINUE TO DISTORT POULTRY PRICES ¶5. (SBU) The government's unofficial ban on poultry imports, imposed two years ago in response to concerns over Avian Influenza, continues to distort poultry prices and has created a serious shortage of eggs and chicken. To remedy the situation, the Ministry of Trade recently injected a supply of eggs from the president's poultry farm into local markets. Customers -- when they can find them -- can buy a maximum of only ten eggs for 1,700 manat per egg at a time. DAIRY PRODUCT PRICES INCREASE DUE TO HIGHER ANIMAL FEED PRICES ¶6. (SBU) Dairy product prices increased as a result of increased animal feed prices due to the establishment of a new state monopoly on wheat bran and cotton seed, the two most common types of fodder. (NOTE: Until this year, wheat and cotton growers received wheat bran and cotton seed as part of their payment from the state for their wheat and cotton crops. In March, when President Berdimuhamedov ASHGABAT 00001263 002 OF 002 increased the price given to farmers for their crops, he also allowed the state entities responsible for wheat and cotton purchases to keep wheat bran and cotton seed to compensate for their operational expenses, effectively creating a new state monopoly. END NOTE.) A seasonal switch from grass-herding to indoor-feeding of cows made this increase even more dramatic. MONTHLY WAGES TO BE INCREASED BY TEN PERCENT ¶7. (U) Following the Ministry of Economy and Finance's acknowledgement in October that inflation had increased by ten percent, President Berdimuhamedov signed a decree on November 12 increasing monthly wages of state employees by ten percent, effective January 2008. The decree stipulated that the average monthly wage in Turkmenistan should not be less than 2,475,000 manat ($110 at the official exchange rate). ¶8. (SBU) COMMENT: While these increases are being felt -- and discussed -- by all, there are signs that Turkmenistan's citizens already have started making adjustments to their diet in order to accommodate these increases. Post has received anecdotal reports that the demand for local cottonseed oil -- the cheapest oil -- has increased as households start buying less butter and vegetable oil. More households are eating beef and lamb, rather than chicken, and so on. And, with the exception of eggs and chicken, there continues to be plenty of all other food basket items in the markets. ¶9. (SBU) COMMENT CONTINUED: Post still does not believe that the situation in Turkmenistan is reaching the point where the higher prices will cause widespread discontent, especially given Turkmen willingness to adapt to the situation and Turkmenistan's steadily increasing foreign exchange reserves, Berdimuhamedov maintains a number of options. END COMMENT. CURRAN