The basic determinants of price development in agriculture and food industry od Slovakia

The main goal of this article is to analyse the changes that took place in the food market after 1997. Therefore the basic determinants of the price development in the area of agriculture and food industry are analysed. The results of this analysis are compared with the price development and relationships before 1997. This procedure makes possible to conclude if the trends from the period at the beginning of economic transformation are confirmed or not. In our study we have used the methodology of multiply log-linear regression that has been derived from the linear regression model. For this purpose we have used the statistical software called STATE 6.0. The above mentioned model has been chosen not only because of a better interpretation of economic results (like price elasticity or marginal changes caused by changes in prices) but also other statistically relevant reasons (like for example reducing heteroscedasticity problems). Our analysis has to be seen in the context of recent trends in theoretical and practical aspects in agro-food research. During the transformation process all eastern European countries faced distortions in the relations between different segments of food supply chain, from farmers up to food producers. Price liberalisation has not been realised in all segments of food supply chain and this especially has damaged farmer's interests and worsened their already desperate situation. This has been another reason that motivated us in our research and studying the relations between different "players" of food chain and market from the aspect of their price relations. Updating price time series for different segments of food chain enabled us to analysing recent tendencies in the food market and creates the possibility for further analysis of the effects of changes in the sector that may be caused by important future socio-economic factors like country's accession into EU and the inflow of foreign direct investment into the sector as well. All this will be analysed from price developments aspects. Main conclusions of our paper are as the following: In 1994 the rate of economic growth created the space to stabilise the CPI groups and the dynamism of the foodstuff prices. From the agricultural and food producers point of view, this growth is desirable because higher food prices create the space for possible increase in prices for agricultural and food producers. The acceptation of higher foodstuff price level depends on the formation of the gross disposable income in Slovak households. After 1997 the developments in households income situation paved the way for an increase in demand for food consumption. Gradually the CPI stability has been shaken and after 2000 the price development was characterised by an expansion in the prices for housing services and partially in the transport prices. Although the household's gross disposable income has increased no improvements could be expected from the aspect of consumer demand either in 2000 or in 2001. The space for an increase in food consumption prices (the final segment of food supply chain) has been slightly reduced again. From the aspect of food price formation for different food chain segments, a relatively independent price development of the agricultural prices is expected for the period to come. This conclusion arises from keeping agricultural prices at a low level that allows only a simple reproduction of agriculture production. With regard to the existing agricultural potential, the low level of agricultural income conserves the prices of most frequent agricultural inputs at a relatively low level. In spite of this the trend of the "opening price scissors" between agricultural input and output prices continues (that can be explained as a further internal deformation in relations between different sectors). Between agriculture inputs that significantly affects prices affects prices of agriculture products can be mentioned: fertilizers, industrial fodder and plant protection facilities. Developments in agriculture input prices (at a certain level represented as a price regulation process) in connection with other administrative interventions created an artificial "interaction" model of above-mentioned prices. In the following period it is highly expected that agricultural input prices will not decline at rate that will make possible the closure of "price scissors". On the other side an increase in the overall agricultural support represented by the indicator of Producer Subsidies Equivalent (PSE) it is not expected so far, given the limitations of the state budget and country's accession process into EU. The negative effect of above mentioned factors and their persistence in the long-term perspective can lad to a decline in agricultural production, a further increase in the agricultural unemployment, a decline in the agricultural production basis, insufficient resource formation, increase farmers insolvency and finally reduction of Slovak agriculture competitiveness in general. Deformation problems in price relationships are also present in the second level of the food supply chain represented by food producer prices. The low level of processing capacity employed in particular areas of the food industry (mainly due to high food imports level) and increasing food input prices intensify pressures toward price increases. However, consumers demand in formation does not allow such a step. So it is expected the continuation of recent trends where food producer prices will continue to copy the line set by developments in food consumption prices no matter what the developments in agriculture products prices are going to be. It is a fact that (as regression analysis has shown), during the analysed time period while food consumption prices increased agriculture prices fell. This confirms among others, the continuation of the exclusion of domestic farmers and processors from the food market and the gradual penetration and growing position of multinational food retailers in the Slovak market. As far as agriculture and food industry is concerned, this represents a certain pressure toward decreasing domestic production. Conditioned by the rate of the economic growth predicted at 3,5 per cent level for 2002, the predicted inflation (7.3-7.7 per cent) and the formation of consumer demand represented by households gross disposable income and also regarding the state budged limitations for 2002 in relationship to agricultural subsidies, it is not possible to expect significant changes in the food market which can positively influence in short term period, the internal relationships between agriculture and food industry. To what extent it is a good solution to speed the convergence process toward the European common agriculture policy (which concepts are recently still very limited and reforming) is a matter of time that the long-term coexistence in the common market will show. It is evident that for the moment it is necessary to be focused on the adequate regulation of agrarian market and all its segments, aiming the stabilisation of efficient domestic farmers and food processors