In February, the average cost of cooking one standard Imeretian Khachapuri fell to 3.29GEL, which is 3.4% lower month-on-month (compared to January 2015), and 4.8% lower year-on-year (compared to February 2014).

The main ingredient of Khachapuri is Imeretian cheese, and, naturally, its price is the main driver of ISET's Khachapuri Index. Over the years, we have been observing a sharp upward movement in the price of cheese from July till January, and an equally sharp downward movement from February till June. These seasonal price dynamics are closely tied to the annual production cycle of the Georgian dairy industry. The price of milk is the exact mirror of the image of this production cycle. It goes up when there is little production, and goes down when there is a plentiful supply.

 The driving force behind these ups and downs is technological backwardness. In the absence of artificial insemination, the vast majority of Georgian cows calve at roughly the same period, in the three winter months. This is the time when milk production resumes, applying downward pressure on the prices of all dairy products, including cheese. After peaking in spring, by July milk production starts declining until cows get a dry two-three months before giving birth.

2014/15 seems to break away from this traditional roller coaster dynamic. As shown in the chart, the fluctuations in the price of cheese that we observe this year are much less pronounced than in 2013/14. The price of cheese did spike in December, reflecting a one-time sharp increase in demand just prior to the New Year holiday season. Other than that, however, the price of Imeretian cheese stayed quite flat ever since September 2014, in the 7-7.30GEL/kg band. Likewise, the price of cheese did not decline as much in the March-June 2014 period.

What's going on? One possibility is that improved farmers' awareness about the advantages of producing (more expensive) winter milk has finally led to the introduction of artificial insemination, smoothening milk production over the four seasons. Another (complementary) explanation is entry by industrial cheese factories or intermediaries that have the ability to store large quantities of cheese and supply the market in fall and wintertime when supply traditionally falls short of demand. In fact, improved storage would explain both higher summer prices and lower winter prices, consistently with our data.

If this is true, the story told by the Khachapuri Index is one of infrastructure improvement and technological upgrading. A story of modernization, in short.