It is clear that many people prefer not to think but simply to believe. It is easier in every sense of the word—until they themselves join the ranks of the unemployed or receive a draft notice.
This belief cannot be disputed using objective data and professional knowledge, because these are two different languages. Belief is the language of emotions, while objective facts are the language of logic.
This article is written in the language of logic for those who are not accustomed to taking everything on faith. It is likely to remain incomprehensible to those who comment on the complex pricing in the fuel market with a single phrase: "You are all lying! Look how much cheaper fuel is in Poland than in Latvia!". Politicians who make loud but unsubstantiated statements about the mythical "superprofits" in the local retail fuel market may also not understand it. Worse still, they attempt to give these statements the force of law, "selling" people the belief that the "solidarity payment" can stop price increases in the local market while they are rising globally.
The main reason fuel is cheaper in Poland than in Latvia is lower tax rates. No conspiracy theories or tinfoil hats. The Polish government has reduced the burden on consumers' wallets through the tax system—temporarily lowering VAT and excise tax rates significantly more than was done in Latvia. This applies not only to diesel fuel but also to gasoline.
In turn, the prices of diesel fuel and gasoline in Latvia are now significantly higher than at the beginning of the year for one simple reason—the cost of fuel is now substantially higher than it was in January. Platts quotes, which are the basis for the formulas for fuel purchase prices, increased on April 8 compared to January 8 by:
Gasoline: +525.50 USD/ton
Diesel fuel: +574.25 USD/ton
Even taking into account the temporary reduction of the excise tax on diesel fuel from April 1, such an increase in global market prices means an increase in prices at gas station displays in the Baltic countries of about 50 cents per liter. And this is not the result of the malice of local fuel traders, but simple arithmetic. Simple for Excel spreadsheets, but boring and dangerous for populists.
For consumers—regardless of what they are being made to believe—it is important to know the truth: unfortunately, not only fuel prices remain high, but global food prices have reached their highest level in the last three years amid the war in Iran. The fastest rising prices are for vegetable oils, and meat prices have reached a new record, according to a report published on Friday by the Food and Agriculture Organization of the United Nations.
With the growing popularity of biodiesel with the addition of RME (rapeseed oil methyl ester), global vegetable oil prices are increasingly tied to fluctuations in diesel fuel prices. Rapeseed oil is used both for cooking and frying, as well as for producing components for biodiesel for diesel.
In many countries, including Latvia, the addition of biofuels to fuel is mandatory. This means that the Latvian consumer, when buying vegetable oil for cooking or a product that contains it, such as cookies or a bun, is competing for that oil with a truck or tractor. Accordingly, they pay for this competition out of their own pockets, even if they do not own a car.
The rise in global prices for vegetable oils, grains, and energy resources usually leads to an increase in store prices with a delay of several months. For Latvia, this is particularly sensitive, as food constitutes a significant part of household expenses at a time when the cost of products from the local food industry largely depends on imported energy and fuel, while transportation costs are rising.
To survive in such conditions, the local producer will inevitably have to raise prices for their products, and the consumer will suffer. However, prices in stores will not rise due to the greed of local food producers, but because the components of their product costs are becoming significantly more expensive. If a producer does not raise prices, they will either go bankrupt or be absorbed by a large international corporation.
Such is the harsh logic of the economic system called capitalism: "You survive, and they die."
Alexey Shvedov, Head of Strategy at AS OLEREX / SIA KOOL Latvija
