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28.2.03

Bread Price Controversy

Minsk's decision to deregulate the price of bread has met with a mixed reaction from the Belarusian public and economic analysts.

Bread is a staple food of the impoverished population and its price has always been kept artificially low by Minsk, but burgeoning losses in the baking industry have prompted the government to drop it from the list of "socially significant" goods.

While some critics fear that prices will more than double, causing further hardship for the former Soviet republic's very poorest citizens, the move has been hailed by economists who argued that the previous policy had brought Belarus' baking industry to its knees.

Other analysts have argued that freeing the prices will put further pressure on the domestic industry. As bread bought just over the border in Russia is up to a third cheaper, this may lead to unfair competition that bakers are ill-equipped to deal with.


Based on my admittedly limited knowledge of economics, I would tend to side with those who are against price controls. If bakers are forced to sell at a loss, they'll eventually go out of business, barring further government intervention or extreme charity on the part of bakers with other sources of income. And expensive bread is better than no bread at all. I understand the concerns of the poor who would immediately face food-buying harships (rather than down the road as bakeries go under). It seems that some form of purchase subsidization (a la food stamps) would be more effective than price controls. It would be able to target the truly needy (rather than reducing everyone's prices) while allowing bakers to generate income. The problem with this is that Belarus doesn't seem to have the efficient, financially solvent, and uncorrupted bureaucracy needed to make such a scheme work well.

What baffles me is the concern with being undercut by Russian bakers. Nobody is stopping Belarussian bakers from continuing to sell their product at low prices. It seems likely that those facing the strongest competition from Russians (presumably those in the east near the border and in major cities with good transportation links) would not raise their prices as much as those that are more geographically sheltered from competition.

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