The Georgian authorities are seeking to crack down on what they see as greedy practices by large pharmacy and retail chains that have compounded the country's inflation woes.

A series of reforms were passed to regulate the pharmaceuticals market, and the government has also stated its intention to intervene to bring down enormous markups on imported basic goods on supermarket shelves.

The pharmacy chains have been under particular scrutiny in recent months. The authorities have accused them of hatching schemes to hike prices on various medications in a bid to mitigate losses caused by new regulations. 

The latest row started after the Ministry of Health suggested that some companies might be "artificially and significantly" increasing the prices of potentially lifesaving cancer drugs. 

"According to our preliminary assessment, the pharmaceutical companies might have entered into an unscrupulous deal and abused their dominant position, significantly harming citizens and the state which funds the treatment of cancer patients," the ministry said on March 23.

Treatment with these medications is covered by the state for up to 25,000 lari (about $10,000) per patient per year. The Health Ministry says it would like to eliminate this cap but argues that it is necessary to combat price-fixing by large drug companies.

According to the authorities, pharmaceutical market leaders like Aversi, PSP, GPC, and Pharmadepot have colluded to triple the already high prices of key cancer medications on the Georgian market. 

On March 27, the National Competition Agency said it started investigating the matter. 

The alleged unethical schemes are apparently a response to a set of reforms meant to bring down the already unaffordable and ever-growing prices of drugs in Georgia.

One of the first policies was implemented early in 2022 when the Georgian government facilitated medication imports from Turkey, a move it said would lower the prices of up to 200 medications.

A few months later, the authorities tightened prescription rules, forcing doctors to only prescribe drugs by their generic names while obliging pharmacies to offer patients a choice of the three most affordable drug options. 

And the key reform that took effect this year was the introduction of reference pricing for more than 1,000 medications. The regulation sets the pricing limit according to prices of similar medications in comparable countries, in order to curb unreasonable and arbitrary hikes.

The Competition Agency says the facilitation of imports saved consumers up to 250 million lari (about $100 million) and expects this number to "grow significantly" through reference pricing and other recent reforms.

But with new reforms, new spats also emerged between the state and companies. 

Earlier, in February, the health ministry alleged that pharmacies were offering cheap Turkish drugs at the prices of their more expensive European counterparts. The Pharmaceutical Companies Association responded that the price hikes were conditioned by Turkey's recently imposed limits on the export of medications.

The government has also sought to bring order to the pricing of staples on supermarket shelves. Work began on drafting new reforms after Prime Minister Irakli Garibashvili announced that a study he had commissioned found that some imported groceries were sold at markups of up to 100 percent. 

"One can't be permitted to get rich at the expense of the people like this, this is wrong behavior," Garibashvili said early in February amid acute concerns about inflation in the country. 

Annual inflation in 2022 reached 11.9 percent, the highest in a decade, while "food and non-alcoholic beverages" have for months remained among the most-affected product groups. Taking photos of European supermarket shelves to illustrate the drastic differences in pricing for the same products has become a popular activity of Georgian travelers. Several such images have gone viral on social media.

Business circles confirmed Garibashvili's claims but traded accusations on whose fault it was: Retail industry representatives pointed the finger at importers for allegedly supplying products at already high markups, while importers accused powerful retail chains of imposing unreasonable charges such as slotting fees or delaying payments to suppliers.

The government is currently working on fair trade legislation to influence pricing policies, pledging to look at EU directives for inspiration. The authorities thus hope to reduce prices by optimizing trade at various levels of supply chains, including with respect to listing fees, marketing expenses, and transparency regarding supplies. 

And the Competition Agency claims the government-business consultations that have taken place over the past weeks have already led to lower prices on essential groceries. 

The rapid rise in grocery prices "is particularly concerning as households in Georgia allocate almost half of their total budget towards food expenditures," ISET Policy Institute, a Georgian university-affiliated economic think tank, said in a recent policy document.

The document warns, however, that price controls are not the solution, as they can lead to shortages, higher levels of corruption, or a drop in product quality. According to the institute, "in spite of the history of failure, regulating prices seems tempting to many policymakers, including the government of Georgia."

ISET suggests other methods instead, such as boosting competition and agricultural productivity, improving logistics, and diversifying import markets.