Bread producers are calling for the removal or adjustment of the import tax on flour. Malkhaz Dolidze, Head of the Bread Manufacturers Union, spoke about the challenges facing the industry during his visit to Mtavari TV, stating that whilst the cost of flour has been rising lately (since the elections) – along with other expenses (electricity, distribution and packaging) – the price of bread has remained unchanged for now.

“We demand the suspension of the temporary tax on flour so that bread producers can keep prices stable. As a result, the current bread prices will not rise. This would ensure access to flour, allowing us to maintain the current prices… I expect that we will engage in discussions with the newly appointed leadership at the Ministry, which will help us reach conclusions, as the interests of wheat growers, flour producers and bakers are all at stake,” stated Malkhaz Dolidze. If the tax remains in place, the price of bread may rise by GEL 0.10-0.15, according to Dolidze.

Levan Silagava, Executive Director of the Wheat and Flour Producers Association of Georgia, responded to the aforementioned demand, clarifying that “any decision on this issue must consider the interests of all three sectors: bread producers, flour mills and farmers. Removing the import tax implies that flour mills would have to shut down and be unable to process wheat during the season. The solution must take into account the needs of all three industries.”

Furthermore, he stated: “To prevent both an increase in bread prices and the closure of flour mills, the funds collected from the import tax could be used to stabilise the price of social (daily consumption) bread through a subsidy of GEL 0.10 per loaf. Notably, the country requires 7,000 tonnes of flour per month. The proposed subsidy would cost around GEL 2 million whilst the revenue from the import tax amounts to approximately GEL 50 million. This is our proposal to the Ministry to ensure that no sector is negatively impacted. It is also important to note that bread producers cannot stockpile supplies – reserves exist in flour mills and farms in the form of wheat. Therefore, shutting down flour mills would put the availability of these reserves at risk.”

What led to this situation?

The Georgian government temporarily imposed an import tax on imported flour (GEL 200 per tonne) in June 2023 for a period of five months with an objective to boost the competitiveness of locally grown wheat and thus promote its sale in the domestic market.

Russia implemented a floating tariff mechanism on wheat exports in September 2021, making it unprofitable for wheat importers in Georgia to bring in wheat, as locally produced flour could not compete with the much cheaper imported flour due to the zero customs duty on flour imports. This led to a decline in wheat imports whilst flour imports experienced a significant rise.

The aforementioned decline in wheat imports and the influx of cheap flour have led to the closure of most flour mills and created challenges for local farmers in selling their wheat. Both farmers and flour mill representatives have been calling for a balancing customs duty on Russian flour import, including a guarantee to maintain bread prices whilst also ensuring the purchase of the remaining wheat crop.

As mentioned previously, the government initially imposed a five-month tax on imported flour. However, on 2 October 2023 it was announced that the tax would be extended until 1 March 2024 with the tax rate increasing from GEL 200 to GEL 250 per tonne. Additionally, an import tax was introduced on barley and bran, with GEL 100 per tonne for imports exceeding 200 kg. Later, the government further extended the import tax in August 2024, this time until 1 March 2025.

Let us explore the impact of this decision on the import and price of flour and wheat below.

Table 1: Wheat and Flour Imports in 2022-2024

Source: External Trade Portal

Thus, Russia’s introduction of a floating tariff mechanism on wheat exports in September 2021 resulted in a decline in wheat imports and a rise in flour imports in 2022, both in terms of quantity and value. However, wheat imports have increased in quantity whilst decreasing in value since the imposition of the import tax on flour in 2023 due to the drop in wheat prices. Meanwhile, flour imports have decreased (in both quantity and value). This trend has continued into 2024.

FactCheck has also analysed flour and bread price trends over the past few months.

Table 2: Detailed Wheat Bread and Flour Price Index (Previous Month=100)

Price of Wheat Flour

Source: National Statistics Office of Georgia

Table 3: Detailed Wheat Bread and Flour Price Index (Previous Year=100)

Source: National Statistics Office of Georgia

The price of wheat flour increased slightly in October as compared to the previous month whilst the price of bread increased during September and October, according to the data from recent months.

Wheat flour prices increased in September as compared to the same period last year in terms of annual comparison. Whilst for wheat bread, an increase in the price was observed in October and November. Data for the current year is not yet available.

In summary, the imposition of an import tax on flour resulted in a decrease in flour imports and an increase in wheat imports. The government’s aim was to support local production and make it more competitive in the domestic market. Additionally, a key condition for the tax was to maintain the price of bread. However, if the import tax on flour is not suspended or adjusted, the increased costs could lead to a GEL 0.10-0.15 rise in the price of bread, as bread producers have pointed out. Simultaneously, the Flour Producers Association claims that abolishing the import tax on flour could cause flour mills to shut down.

David Songulashvili met with the representatives from the Wheat and Flour Producers Association, the Bread Manufacturers Union and flour mills, according to the information released by the Ministry of Environmental Protection and Agriculture of Georgia. The Ministry claims that they emphasised that supporting the private sector is a priority for the government. All challenges were discussed during the meetings and decisions will be made based on consensus.

As we can see, the Ministry will need to make a specific decision regarding this matter. Whether the Ministry will increase the price of bread or provide a subsidy will be announced in the near future.

We will continue to monitor the issue and provide our readers with updated information.