The Chamber of Commerce announced that they were not consulted when it comes to the Government's decision to limit margins on 66 food and hygiene products, stating that they believe that such or similar solutions would be of better quality if the actions were coordinated with the economy, because deflation "cannot be created on this way", and such policies "can cause damage not only to traders but also to businessmen in the entire supply chain".
They also point out that the "Analysis of prices and operations of trading companies in Montenegro - the food products and soft drinks sector", which was carried out by a team of professors from the Faculty of Economics, showed that the rise in prices in the previous period did not occur as a result of the irrational behavior of the economy, but as a result of factors which are not affected by the economy.
"Taking into account the media's interest in the position of the Chamber of Commerce and traders on the latest 'Decision on temporary measures to limit the prices of products of special importance for the life and health of people and the list of products', we would like to emphasize that, unfortunately, this time the Chamber of Commerce was not consulted, and the Decision was forwarded to us by email on Wednesday, August 27.8 at 15:30 p.m., a little less than 24 hours before the Government session at which it was adopted," the PKCG press release states.
They also said that reacting to the consequences, instead of the cause, can only produce short-term effects.
In the announcement, they stated, as they say, the most important findings of the "Analysis of prices and operations of trading companies in Montenegro - the food products and non-alcoholic beverages sector". They say that the Chamber of Commerce, after receiving the Decision, forwarded the analysis to the competent ministry, with a request to further consider its adoption.
"In 2022, the trade sector had the largest participation in the creation of gross added value in Montenegro (14,4%), while based on direct and indirect effects, it participates in the creation of more than 20% of Montenegrin GDP. According to Monstat data - and more than one third of the total of 157 thousand employees in private companies work in the trade sector, which makes this sector the largest employer in Montenegro," they added in the announcement.
They say that the above data indicate the importance of the trade sector for the economy of Montenegro.
"Bearing in mind the above, as well as the fact that the limitation of domestic production results in a high share of imported products in internal traffic, which further leads to a high sensitivity of domestic prices to price fluctuations on import markets, when considering interventionist measures, one must take into account their impact on the operations of the sector In this regard, the Chamber of Commerce of Montenegro hired a team of professors from the Faculty of Economics in Podgorica to prepare a study on "Prices and business operations in Montenegro". an objective picture of the impact of the business policy of economic entities from the trade sector on the growth of prices of consumer goods, analyzes the impact of the application of the Regulation on Limiting Margins in Montenegro on the Consumer Price Index and the minimum consumer basket, and provides an overview of comparative experiences in the area of price interventionism," states PKCG.
They also highlighted some of the most significant conclusions of that study:
"A comparative analysis of nominal GDP growth rates, labor productivity, gross wage growth, consumer price index and prices of imported products in 2023 compared to 2021 shows that wages in the trade sector grew significantly more intensively than productivity growth, which is , with a high increase in the prices of imported products in the food and beverage category of 29,13%, generated an increase in the prices of food products of 31,17%. When earnings grow faster than productivity, price growth is inevitable, which in this period is evident not only for food and soft drink products, but also in total. In the same period, total average gross wages increased by 19,1%, while labor productivity (in total) in the same period nominally decreased by 3,3%, with an inflation rate of 22,2, 16,3% The growth rate of import prices was also high (XNUMX%), taking into account the higher growth of prices of imported food products and the growth of wages in the trade sector compared to the overall growth of prices of products in the food and beverage category. on the overall consumer price index is expected.
"The growth of personal household consumption, from 71,3% of GDP (2019) to 74,6% of GDP (2022), also generated an increase in demand, which, consequently, partially affected the increase in prices in this period.
"The analysis of the dynamics of turnover in retail trade in Montenegro on a monthly basis in the period January 2023 - January 2024 showed that the rates of real growth in trade turnover, with the exception of the winter and summer tourist season, are higher than or equal to the growth rates of turnover in current prices, which indicates the fact that the trade sector is not a generator of inflation.
"The analysis carried out on GDP data for 2022 (constant prices from 2010) showed that a 20% reduction in GDP in the trade sector, based only on direct effects, would affect the reduction of the real GDP growth rate. and for 1,9%.
"The number of employees in the trade sector in the period 2007-2022 increased by 40,4%, while the total number of employees in Montenegro increased by 38,2%. If the number of employees in the trade sector were to decrease by 10%, the total the unemployment rate would increase from 11,8% to 13,47% (data for the third quarter of 2023).
"The largest participation in business costs for the trade sector (period 2021-2022) is made up of the costs of wages and benefits based on wages (38,2% on average) and the costs of materials (33,76% on average), while gross investments (new investments + depreciation) make up an average of 7,3% of total expenses. Profit before taxation accounts for 20,7% of the difference between the sales and purchase price of goods. Bearing in mind that the change in the price of production inputs inevitably leads to an increase in the cost of the trade sector Namely, there was an increase in the share of salary costs in the gross margin in 2021-22 compared to the average in 2008-2022, from 30% to 38,2%, the share of material costs increased from 20,6% to 33,7. 16,8%, average gross investments decreased from 7,3% to 37,1%, but also gross profit from 20,7% to XNUMX%.
"The simulation of the impact of the growth of business costs on the prices of food products and beverages, showed that the growth of the costs of the specified inputs at the rates of 2022 results in the growth of total costs by 24,8%. The growth rate of the prices of food and non-alcoholic beverages in 2022 was 22,64%, which means that the growth of operating costs was reflected in the reduction of profits, and not in the generation of inflation.
"The average rate of gross margin achieved in the trade sector in the period 2008-2022 was 21,47%, while the average rate of net margin (before taxation) was 8,31%. There is an evident decrease in the average rate of net margin in the period 2019-2022 year, from 14,72% (2019) to 8,27% (2021) and 1,42% (2022).
"The analysis of business operations of trading companies (large trading chains, wholesalers, micro and small companies), based on financial reports for the period 2021-2023, showed that the gross margin rates are at a level that ensures economic efficiency, and that any significant limitation of them would negatively affected the company's operations. The negative impact of limiting margins is most visible in the micro-enterprise sector," the analysis says, as stated by PKCG.
They state that trade margins in the region last year were the lowest in Bosnia and Herzegovina, 15 percent, while in Serbia they were 24-26 percent, in Croatia above 30 percent, and in Germany 37 percent. "The study of the National Bank of Serbia showed that the trade margins of a group of retail chains in Serbia amounted to 26,8% in 2022, and that they are nominally higher in 2022 than in 2019 by 36,6%. Average unweighted rate the gross margin for trading companies in Montenegro (the sample analyzed in this study) in 2023 amounted to 17,9%, which makes it lower compared to all countries in the region except Bosnia and Herzegovina," adds PKCG.
They also say that a comparative analysis of the application of price control measures using the limited margin instrument in Serbia, North Macedonia and Croatia showed that these measures do not have an anti-inflationary character.
The analysis of the impact of limiting margins on the value of the consumer basket, they add, showed that limiting the prices of products of special importance for people's life and health for 30 products of the specified basket, leads to a decrease in the value of the minimum consumer basket by 3,2 percent.
"In the conditions of market operations, the equilibrium on the market is established by the relationship between supply and demand, and the indicator of equilibrium is the price - a key economic category that indicates the difference between the market and the planned (interventionist) economic system. In the case of prices formed on the free market, or prices that would be formed without government intervention, the costs of production are covered by the revenues. If the government intervenes in the market, and sets lower prices, the revenues will (possibly) not reach the costs. The traders and producers will then withdraw the goods from the market, unless the storage of the goods significantly reduces their value , in the hope that circumstances will change, and that the Government's decision will be revoked. Alternatively, it is possible to increase the margins on products that are not subject to the regulation, which would ultimately affect the growth of the general price level. The most pessimistic scenario is the one in which, due to due to the reduction of the economic motive, a certain number of commercial enterprises reduced the volume of business or stopped working, which would cause an increase in unemployment, a decrease in wages and a fall in GDP", the announcement concludes.
Bonus video:
