Czech Agriculture Ministry evaluates draught damages at CZK10-12bn

The agriculture ministry evaluated damages from this summer’s draught between CZK10bn and CZK12bn, according to a report prepared with the assistance of the Czech agricultural chamber. However, some experts claim that these damages do not include water supply losses, which could add another CZK12bn. At this point, compensations to agricultural producers may reach CZK2.85bn in 2018, which would be a new record level from the CZK1.2bn paid out in 2015, when another hot summer was recorded. Compensations will be paid out as of the beginning of December, which suggests the agriculture ministry might go over budget this year.

There are expectations that food prices will increase as a result, with flour-based foods (like bread) to become more expensive by up to 10%, beer to become more expensive by up to 5% (as the barley harvest was poor as well), while potato prices could jump between 25% and 50%. Fish prices may be higher as will, since water shortages affected fish breeding areas and production has been falling. At this point, we haven’t observed a big increase in cereal prices, given that there is a large enough market to make up with imported grain. Nevertheless, there are probably some secondary effects that could be reflected in final food prices this autumn. For instance, beer prices have not reflected yet the new, smaller harvest, and given that consumption relies mostly on domestic production, there will be certainly some boost.

Given that the CNB doesn’t exclude food prices from its inflation indicator for monetary policy purposes, there may be some deviation from the target again. With more hawkish members on the CNB board arriving as of December, it may lead to rate hikes in the remaining two MPC meetings this year.

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