Export Ban Frustrates Farmers

Vivian Salama

The National | September 15. 2008 8:13PM UAE

MUMBAI // Rice farmers are growing increasingly frustrated as their planting season nears and India’s export ban on the grain continues. With planting just two weeks away, farmers fear they will suffer financially as countries, including the UAE, turn to other markets to satisfy demand. 

India’s non-basmati rice – the most affordable and popular variety of this staple grain – has not left its borders since April. The government in New Delhi said the ban was to safeguard domestic supplies for the world’s second-largest population.

However, the embargo has many critics abroad – heavily rice-reliant countries in the Gulf – and in India. This month, the country’s food ministry estimated positive yields of 6.24 million tonnes for the coming rice season, well above the target of 5.2 million tonnes. The government has already opted to lift the ban on corn exports, saying it expected to harvest a bigger crop this year.
“We have to protect the interest of farmers,” India’s agriculture minister, Sharad Pawar, told Reuters.

The Indian government had originally imposed the ban on non- basmati rice last October, but lifted it following protests from exporters. It later re-implemented the ban and added a duty of US$200 (Dh735) per tonne for the export of basmati rice. 

Now, talks to reverse the ban on certain types of rice have stalled, despite positive forecasted yields. Farmers are angered by the ban, saying it is detrimental to India’s agricultural sector.

“Farmers don’t want bans on rice or wheat,” said Balbir Singh Rajewal, a paddy farmer and president of the Bhartiya Kisan Union of Punjab. “When exports are banned, farmers lose money.”

The decision by countries such as India, Egypt and Brazil to limit exports on rice as a way to curb skyrocketing prices and feared domestic shortages has been criticised by Gulf-based retailers whose businesses rely heavily on sales of the grain.

The price of the benchmark 100 per cent B grade white rice was up last week to $735 per tonne, although it has slipped with falling oil prices from its record high of $1,080 per tonne in April.

The UAE imports more than 75,000 tonnes of rice annually from countries including India, Pakistan, Thailand, Vietnam and the Philippines. More than 3.5 million Indians live in GCC countries, with 1.4 million in the UAE alone, making this a hot-button issue in the region.

However, those representing India’s agricultural sector insist that the stakes are even higher domestically. Agriculture is a major component of the economy, from which more than 66 per cent of Indians earn their living. 

While India currently holds a 53 per cent share in the global basmati rice market, many industry insiders are concerned that countries such as those in the GCC, which once relied heavily on India for their rice supplies, will turn to other sources such as Pakistan and Thailand to satisfy demand.

“A lot of that rice is coming into the Middle East right now, but what is happening is that non-basmati has been replaced from countries like Thailand, where prices are starting to get lower week by week,” explained Sunil Bhanji, the Middle East general manager for Tilda, which has its farms in the Indian state of Haryana.

Burhan Turkmani, the general manager of Al Rabiah Trading, based in Dubai, said: “We used to get our non-basmati rice from India but ever since the ban, we have been importing non-basmati from any other countries, like Thailand. For other types of rice, we try not to rely on India now because their prices have soared since the ban.”

Today, the food chain that takes the most basic items from the ground, and via a series of wholesalers and middlemen eventually into a retail shop and into consumers’ hands, has come under strain, with soaring oil and food prices gripping the world. Retailers in the UAE, who have been forced to cap their prices in recent months, say importers should pay the price. But importers say they are at the mercy of exporters.

“In terms of who calls the shots or holds more clout with regard to the distribution chain, it would be the middleman, often private exporters or marketing boards who take from the farmer and then set export prices,” explained Abah Ofon, a soft commodities analyst for Standard Chartered Bank.

Governments in the GCC have recently made it their priority to build up strategic food reserves to protect against export bans and high prices, while eliminating the added costs brought on by middlemen. The Government of Abu Dhabi has already finalised a scheme to purchase farmland in Northern Sudan, and is currently in talks with the governments of Pakistan, Egypt and Kazakhstan. 

Indian farmers insist that rather than curbing exports, their country’s agricultural sector would benefit far more from similar investments by the GCC countries. 

“This would bring many good things to India,” Mr Setia said. “India now encourages foreign investment and farmland investments would be a welcome step.”

Egypt Hard Hit by Inflation

This is an audio feature I recorded while on assignment this week in Egypt.  It’s a wrap of my coverage.  

Click here if you’re interested.

Cairo property has a traffic jam

Vivian Salama

The National | July 09, 2008 7:53PM UAE

Photo by Victoria Hazou

CAIRO // Egypt’s property developers say that higher market prices, brought on by an influx of Gulf-based developers and soaring construction costs, have caused a slowdown in the industry. 

Analysts estimate that only two to three per cent of Egyptians can afford the properties, priced at more than 1 million Egyptian pounds (Dh687,000), that are springing up across the country.

“This is a poor country – the people have it tough as it is,” said Hatem Issa, the general manager of Iqarat Misr, a Cairo-based property investment company. “The Gulf developers who come here work in dollars. This is a pound-driven market, so it naturally drove prices up.”

In recent years Egypt has been the emerging market of choice for many Gulf-based developers, since it offers a large domestic market with low input costs. Industry estimates place the value of Gulf investment in the Egyptian property sector in excess of $885 million per year and growing.

“Initially the effect is that [Gulf companies] instilled a level of optimism and excitement because they came in and paid a lot of money for raw land,” said Tarek Shahin, a property and construction analyst with Beltone Financial in Cairo. “They are willing to pay historically high prices for land because they think that much money can be derived from the Egyptian public.”

The most populous country in the Arab world, Egypt is home to nearly 80 million people. Ninety-six per cent of them live on only four per cent of the land, due to the sprawling deserts both East and West of the Nile.

Industry forecasts suggest a demand for 600,000 units a year in Egypt, although Mr Issa says the figure is unrealistic.

According to the UN, the urban population is expanding at a rate of 1.7 per cent a year, triggering the dispersal of Cairo’s city dwellers to outlying areas.

Intensive urbanisation projects have resulted in major developments around the capital, including Sixth of October City, New Cairo and Katameya Heights. Developers estimate that about 85 per cent of the upmarket properties built in recent years are owned by Egyptians and Egyptian expatriates. 

However, according to Mr Issa, prices are soaring at unprecedented rates, creating panic within the industry. In Sept 2006, Iqarat Misr sold villas in Sixth of October City for 800,000 pounds; today the same houses sell for 1.8m pounds.

“If the situation was moving step by step then it’s one thing, but it’s happening bam, bam, bam; not expected at all,” said Mr Issa. “If we had time to reformat our strategies and re-evaluate our costs then it might be better, but it’s happened so fast and nobody knows what tomorrow will bring.”

The impact of the Gulf-based developers’ positioning in the market is exacerbated by soaring costs. The price of steel reinforcement bars, which make up approximately 20 per cent of the total cost of construction, has risen threefold since 2006.

Despite the concerns of local developers, billboards around the capital demonstrate the ubiquity of their UAE-based counterparts. Emaar Misr has invested Dh20.33 billion in Egypt, including a Dh7.7bn development in Uptown Cairo and the Dh2.57bn Cairo Gate, a commercial and residential development.

The company will soon start a project in Marassi, an upmarket residential and tourism community built around an area of seven square kilometres at Sidi Abdel Rahman. The company paid Dh642.8m for the undeveloped land in an auction two years ago. Emaar Misr also plans to build a self-contained residential community close to the Smart Village on the Cairo-Alexandria Desert Road.

Also last year, Damac Properties announced a number of ambitious projects in Egypt, including Park Avenue, a mixed-use centre of four million square metres. It plans to build the New Cairo project, which will comprise residential and commercial properties, over an area of 6.3 million square metres.

Al Futtaim Group also recently began work on Cairo Festival City, an indoor-outdoor shopping and entertainment centre of 154,000 square metres, similar to its namesake in Dubai.

Mr Shahin said that the greatest problem brought on by luxury developments from the Gulf was a mismatch in the country’s property offerings. “Affordability is going to be an issue but the fact is, people will always need to buy a home so the question now is who will offer a project where they sell more affordable housing?”

vsalama@thenational.ae

UAE in Farm Talks with Egypt for Food Supply

Photo by Victoria Hazou

by Vivian Salama

The National

CAIRO // The UAE is pursuing investments in farmland and other agricultural business projects in Egypt in an effort to secure strategic food reserves. 

The Egyptian minister of foreign trade and industry, Rachid Mohammed Rachid, confirmed that his government was in talks with Abu Dhabi to embark on bilateral agricultural investment projects.

“There are some projects we are negotiating with the UAE related to food security for the UAE, and possibly third countries,” said Mr Rachid. “At the same time, the UAE is willing to help from an investment point of view, because it became a viable investment proposition to put more money into food, especially agriculture and agribusiness, and there are a number of projects we are currently negotiating.”

Mr Rachid said the proposed projects ranged from farmland investment and development to setting up infrastructure for agribusiness and food processing. He is scheduled to travel to Abu Dhabi tomorrow for further discussions with Sheikh Mohammed bin Zayed, Crown Prince of Abu Dhabi. .

While an Egypt-UAE agricultural alliance could prove to be vital in helping to protect UAE residents against crippling export bans, record-high commodity prices and potential food shortages, it would also be of equal benefit to Egypt.

Mr Rachid said his country was looking to boost its annual agribusiness investments from about four billion Egyptian pounds (Dh2.75bn) to the rate of about 25bn pounds per year for the next 10 years. Details for any UAE-Egypt initiatives have yet to be finalised.

Egypt, the world’s fourth-largest exporter of rice, is set to produce 4.6 million metric tons this year. A total of 3.2 million metric tons were estimated for local consumption, while 1.4 million were available for exports. It is also a significant producer of wheat, corn, sugarcane, fruit and vegetables, and fodder. With almost 80 million residents, Egypt has the highest population of any country in the Arab world.

In an effort to preserve local supplies, the Egyptian government has implemented a controversial ban on rice exports, which Mr Rachid said could last until April next year. Earlier this year, Egypt, like many countries worldwide, was the scene of violent social unrest over rising food prices.

“We are not happy having the ban in place, but obviously we are not in a position to pass these high prices to Egyptian consumers,” Mr Rachid said. “Egyptians are paying double the price for wheat, three times the price for corn – animal feed is up by three to four times.”

Various factors including limited water and agricultural land force countries in the GCC to rely almost entirely on imported food items. The UAE imports nearly 85 per cent of its food, worth an estimated Dh11bn annually.

UAE inflation accelerated to a 20-year high of 11.4 per cent last year – its highest level in 20 years – with food, beverage and tobacco accounting for 11 per cent of that hike. The situation is just as grim in Egypt. Inflation rates rose to 19.7 per cent in May, the highest since the government began regularly releasing records to the public, in 1998. Official statistics show that food and beverage prices in Egypt rose by 27 per cent in the year ended in May.

The Egyptian government has long implemented subsidies on various basic goods, with state subsidies for basic food products estimated at more than 21.5bn pounds, compared to 10bn pounds last year, an increase of 115 per cent, the Ministry of Finance reported. Mr Rachid said it was his government’s intention to transform the subsidy system from a commodity- to a cash-based system, a move expected to shave 30 to 40 per cent off government expenditure.

“What we have seen in the last 18 months is a global crisis at a magnitude that we have not seen in the last 25 to 30 years,” Mr Rachid said. “The normal conditions that normal Egyptians have to cope with is horrendous.”

The partnership with Egypt is the latest effort by the Government to establish strategic food reserves outside the UAE’s borders. Earlier this year, the Abu Dhabi Government finalised a scheme to buy 29,400 hectares of farmland in Northern Sudan, a project set to commence by the end of this year. The farm, located in the town of Abu Hamed in the state of Nahr an Nil, which borders Egypt, will be used primarily for the cultivation of alfalfa, a plant used to make food and animal feed. Government officials have confirmed that Pakistan was also on their radar for farmland investments, although no official proposals have been made public.

Photo by Victoria Hazou

UAE reaps farmland in Sudan

by Vivian Salama

The National

ABU DHABI // A scheme has been sealed to buy farmland in Sudan and grow crops that will be used to build up the UAE’s strategic food reserves, with the first fields cultivated towards the end of the year, officials from both countries say.

Crops would be planted on a farm of about 70,000 feddans (29,400 hectares) in Northern Sudan. While the deal will undoubtedly provide a much-needed boost to Sudan’s economy, Abu Dhabi officials say their strategy is to shield UAE residents against record high commodity prices, crippling export bans by supplier nations and potential food shortages.

“Within a short time, it will be very hard to secure these kinds of crops worldwide,” said Mohammed al Suwaidi, the acting director general of the Abu Dhabi Fund for Development (ADFD), the government branch heading the project. “Even if you have the money to buy it, you won’t be able to find it.” 

Officials said it was too early to disclose the value of the deal. Only 16 per cent of the nearly 100 million hectares of land in Sudan has been used for farming, according to Sudanese officials. Crippled by poor infrastructure and technology, the government of Africa’s largest country is hoping to exploit this resource as a means of attracting investment.

“Sudan is looking for investors because we are lacking in infrastructure and proper financing, so we give the land at a very low price to attract investors,” said Nurel Huda Fath al Aliem sid Ahmed, the economic adviser at the Sudanese Embassy in Abu Dhabi. “Sudan will give free water, cheap land, exemptions from customs duties and from all the fees that might restrict investment.”

The farm, located in the town of Abu Hamed in the northern Sudanese state of Nahr an Nil, will be used primarily for the cultivation of alfalfa. According to Mr Suwaidi, the price of alfalfa has increased by almost 50 per cent since last year. Officials say that soil studies are under way to determine whether the land will also yield substantial amounts of corn, rice, peanuts and potatoes.

The UAE imports nearly 85 per cent of its food, worth an estimated Dh11.01 billion (US$40bn) annually.

Escalating inflation has driven the Ministry of Economy to consider alternative sources of food to boost supplies, while cutting costs. Co-operative societies have been urged to form partnerships with food producing countries, enabling them to buy produce at source. 

The Ministry of Social Affairs has also recommended that local co-operatives lease farms from similar organisations in countries such as India and Brazil, which would significantly reduce the chain between farmer and retailer.

The Ministry of Economy is considering the purchase of farmland in Pakistan worth US$500 million (Dh1.8bn), as part of a strategy to lower food import costs. Similar farming schemes are under consideration by the ADFD, although no other deals have been finalised. 

A number of GCC states had expressed interest in cultivating Sudanese land, however only the UAE had finalised negotiations, said Dr Ahmed, adding that the Saudi Arabian private sector is also pursuing farmland investments.

“About 300,000 feddans have been bought by Saudi companies but they have not begun to cultivate,” he said. Feddans are the unit of measurement used in Sudan and some other Arab speaking countries.

The Sudanese official said that while talks with the GCC have got off to a good start, his government hopes that these investments will grow in time.

“Seventy thousand feddans is really nothing when you think of how much land we can offer and how much money these governments can spend,” Dr Ahmed said. “We hope to receive investments for one million feddans, not only 70,000.”

The Abu Hamed farm is one of several investment projects headed by the ADFD in Sudan. The Government recently pledged Dh275m to finance dams in the African nation. Mr Suwaidi said the first Dh184m loan would be used to complete the Marawi Dam in Northern Sudan, which the ADFD had previously helped finance with a Dh551m extension.

Dr Ahmed said that such projects were vital to Sudan’s prosperity. “We are really depending on governments here to help us to build our infrastructure, whether paving the roads, or greater construction or better electricity,” he said.

vsalama@thenational.ae

Sharjah: register or leave

 

by Vivian Salama and Robert Ditcham

The National

Thousands of construction workers being housed in Sharjah may be relocated under a proposal requiring them to be employed by a company registered in the emirate, following several incidents of labour-related strife. 

In a proposed amendment to the labour law, companies that are not licensed to operate in Sharjah will be prevented from using the emirate to cheaply house workers they employ for jobs elsewhere in the country.

The affected companies will be forced to either obtain a trade licence through the Sharjah Municipality enabling their resident workers to stay, or find new accommodation for them in the UAE’s six other emirates.

By way of comparison, the fees for companies obtaining a licence from Hamriyah Free Zone in Sharjah range from Dh12,000 (US$3,260) for a general trading licence to Dh2,750 for an industrial, commercial or service licence.

Two senior members of the Sharjah Government confirmed that the law was in the final stages of approval and just weeks away from coming into effect. 

They said they were pursuing the amendment to the current legislation to improve law and order following a series of protests and violent skirmishes over the rising cost of living. 

“Most of the companies are in Dubai, but the workers live in Sharjah,” said Sheikh Sultan bin Ahmed, chairman of the Sharjah Commerce and Tourism Development Authority. “The companies will be forced to either register their workers in Sharjah or find new accommodation in Dubai or the other emirates.

“If anything happens, it is usually Sharjah to blame,” said Sheikh Sultan, who added that the number of workers living in the emirate greatly outweighed the number of police officers available to contain labour protests. 

However, the move would be unpopular with workers who commuted from Sharjah to escape Dubai’s high rental rates, said Burhan Turkmani, the general manager of the Dubai-based Al Rabiah Trading company, a food importer.

“Sixty per cent of my employees live in Sharjah,” he said. “It’s far too expensive for certain employees to live in Dubai.

“These people, they live there, they spend much of their income in Sharjah, their children go to school in Sharjah, and they only go to Dubai to work. It may be a bit harsh. Food prices and the cost of living are going up, so people are suffering as it is.”

With a more affordable cost of living than Dubai and lower operating costs for worker compounds, Sharjah has attracted thousands of construction labourers. Many are employed in Dubai or Abu Dhabi, where construction is expanding rapidly.

In recent months, Sharjah has been rocked by violent protests. 

In April, more than 600 Asian labourers were arrested after a protest in the Al Nahda district. Workers from the Tiger contracting company attacked police with stones and bricks from an upper storey of a building under construction, the emirates news agency WAM reported.

Weeks earlier, about 1,500 rioting workers set alight management offices in a labour camp, clashing with police and officials.

Shehab el Orabi, the senior development manager at the Waterfront real estate project in Dubai, said he understood Sharjah’s motive for amending its labour law.

“I fully agree with them. Why would I have to take care of problems arising from labour camps there if they [workers] were not even working in Sharjah or contributing to the local economy?”

Mr Orabi said implementation of the law would likely encourage companies to build more modern accommodation facilities in proximity to the places that the men worked, thereby cutting the travel time to work and reducing the number of vehicles on the road.

About 250,000 vehicles travelled through Sharjah every day to locations outside the emirate, 50,000 of which were trucks, Sharjah officials have reported. 

Mr Orabi said construction companies required to remove their workers from Sharjah would seek to build new sites or lease accommodation at existing facilities. This would create a strong demand for sites such as Nakheel’s Omran worker housing project in Dubai, which had the capacity to house 60,000 workers, he said.

vsalama@thenational.ae

rditcham@thenational.ae

UAE may buy Pakistan farms

 

by Sarmad Khan and Vivian Salama

The National

ABU DHABI // Inflation and the spectre of long-term food shortages have prompted the Government to consider a new strategic investment – the purchase of large-scale farms in Pakistan and other countries.

The aim is to protect the country from the turmoil of soaring wheat and rice prices and export bans by producing countries that could lead to food shortages.

The Government is holding exploratory talks with Pakistan on the proposal, according to a senior Pakistan government official and the Emirates Society of Consumer Protection, a division of the Economy Ministry.

The Government was looking to acquire large land holdings and import food at 20 to 25 per cent less cost, a senior Pakistani government official said. 

There are six parties in the chain between the farmer and the time the product reaches retailers including the farmer, broker, exporter, importer here, wholesaler and retailer. 

According to a Pakistani official each party retains a 5 per cent margin on each transaction, and by eliminating several steps the government can bring the cost of food down by 20 to 25 cent, according to a senior Pakistani government official.

“The talks have been going on between Pakistan’s government and the UAE’s Ministry of Economy for some four months, however no concrete decision is made yet,” he said. The ministry was seeking support and guarantees from Pakistani counterparts before getting into large-scale corporate farming, he added.

Rising inflation is one of the driving forces behind the Economy Ministry’s decision to consider alternative food sources that would secure supplies for the country while cutting costs.

“We believe that, if we get products directly from the farms, it will encourage market competition,” an official at the Emirates Society of Consumer Protection said, adding that the government was studying similar options in other countries.

Pakistani officials say their government will facilitate negotiations between farmers and UAE representatives but it is not involved in growing food and cannot help the UAE set up government-supported farms.

Last week Pakistan announced the introduction of tax exemptions, duty free import of equipment and 100 per cent land ownership in specialised free zones in its agriculture, livestock and dairy sectors to lure potential investors.

It is expected to announce more concessions to entice investments.

“Agricultural free zones will be set up within the next four to five months, which will open up doors for the nations to own sources of food supply,” the Pakistani official said. “It is a good opportunity, especially for GCC countries which are dependent on food imports.”

GCC countries rely heavily on imported food and the UAE imports nearly 85 per cent of its supplies for an estimated Dh11 billion (US$3bn) annually.

The GCC is the largest importer of food from Pakistan, according to Pakistani officials. A number of GCC-based companies have already turned to Pakistan for alternative resources. Qatar Livestock Company is to invest $1bn in corporate farms in Pakistan, according to Huma Fakhar, an adviser to the Bahraini government. Some Saudi Arabian groups, particularly Al Rabie Group, a dairy company, have expressed interest in buying land in Pakistan.

“There is a global crisis right now,” said Miss Fakhar. “If you do not prepare these reserves now, then three to four years down the line it will turn extremely critical.”

Several UAE-based retailers including Baniyas Co-operative Society, Carrefour, Union Co-operative Society and Lulu hypermarkets have agreed to help the government to curtail inflation by putting price caps on basic commodities.

Last week the Economy Ministry urged retailers to start stockpiling basic food items to prevent shortages resulting from export bans by countries like India, Egypt and Brazil.

The UAE government has also urged retailers to consider eliminating middlemen when importing commodities to cut costs. While executives like José Luis Durán, the chief executive of Carrefour, encourages supermarkets to work directly with farms, others are concerned that this carries a hidden catch.

“If you want to make money as a farmer, go to a place where the farmers are making money, not a place where the land is cheap,” said Jannie Holtzhausen, chief executive of Spinneys in Dubai. “What has now suddenly changed in the world that the economic model drives governments to become farmers?”

Concerned about what the initiative means to their businesses, local importers are speaking out against it.

“Eliminating traders from this process would be a mistake,” said Burhan Turkmani, the general manager of Dubai-based Al Rabiah Trading Company.

“Farmers are not exporters and governments are not importers,” added Riaz Hussein Bhojani, the general manager of Rashwell Company, another trading company

Retailers Seek Relief from Importers

 

By Vivian Salama

The National

DUBAI // Tensions are brewing between UAE-based importers and food retailers over ways to ease the burden of rising commodity prices. Record prices on staple items such as rice and wheat have left supermarkets scrambling for solutions to help customers cope.

“We’re not shying away from our responsibilities,” said V Nandakumar, a spokesman for Lulu hypermarkets, which signed a memorandum of understanding last month with the Ministry of Economy implementing price caps on 32 basic items. “From the wholesalers and importers and suppliers, we hope that they also follow similar price caps or some kind of measures to curb the [impact of] inflation.”

However, according to Burhan Turkmani, the general manager of the Dubai-based Al Rabiah Trading, importers are at the mercy of global exporting countries as market prices on commodities continue to climb.

“We are dealing with exporters and brokers outside this country, so the price is out of our hands and in their hands,” said Mr Turkmani, whose company imports staple foods from countries including Thailand, Vietnam, Pakistan, India and Egypt.

Various factors, including limited water and agricultural land, force countries in the Gulf to rely heavily on imported food items. The UAE imports nearly 85 per cent of its food. However, more than 70 per cent of all UAE food imports, worth Dh11.01 billion (US$2.9bn) annually, are then re-exported to markets around the world, including other GCC countries, the Indian subcontinent, North and East Africa, and the Central Asian Republics.

Global rice prices jumped from US$650 to US$1,000 a tonne in the first three months of this year, reaching a 25-year high. Last week, Thai rice surged to a record US$1,000 a tonne, three times its level in January, and India’s export prices for basmati rice rose from US$1,100 to US$1,200. In March, India halted exports of non-basmati rice as a way to curb rising prices and avoid domestic shortages, a move that has attracted strong criticism from UAE retailers, whose customers include the 1.4 million Indian nationals living here.

According to Riaz Hussein Bhojani, the general manager of a Dubai-based importer, Rashwell Company, the landed price of Pakistani basmati rice is now Dh5,505 a tonne, up from Dh2,569 last year. Mr Bhojani said he now paid as much as Dh230 for a 39kg sack of Pakistani basmati rice. Al Rabiah pays about Dh160 for each 38kg bag of Indian basmati rice, up from Dh115 last year.

“There is absolutely no point in putting a cap on anybody without listening to the importers,” said Mr Bhojani. “The Government needs to form a price committee and then take people from the importers and from ministry and maybe some retailers and find solutions.”

This week, Baniyas Co-operative Society followed the lead of larger retailers such as Carrefour, Union Co-operative Society and Lulu hypermarkets by implementing price caps on dozens of basic commodities in an effort to ease the burden of inflation. Many retailers fear that price caps will ultimately result in losses since they are buying their commodity stocks at one price but selling them for less.

“Price caps should be on the suppliers, not the retailers,” said David Berrick, the retail general manager of Abela Supermarkets. “We can lower our prices and use the marketing tool of ‘everyday low prices’, but if supplier costs go up, we have no choice but to raise prices.”

Mr Turkmani said he understood the concerns of retailers. However, suppliers are being faced with similar challenges. “If importing costs go up, then we are left with no choice but to boost our prices,” he said.

This week, the Ministry of Economy urged retailers to start stockpiling basic food items to prevent shortages caused by export bans in countries such India, Egypt and Brazil. The ministry has also urged local retailers to consider eliminating the middlemen when importing 15 basic commodities as a cost-cutting measure.

“It’s cheaper for the hypermarkets to buy from the farms directly because it eliminates the costs from middle agencies plus it encourages greater sales competition, which ultimately benefits the consumer,” said a spokesman for the Emirates Society of Consumer Protection.

Mr Turkmani objects to such alternatives, saying the industry will suffer major consequences. “Retailers don’t have the experience to deal directly with the farmers,” he said. “We know the best locations, have the best contacts, and can find the best quality of food out there. Eliminating importers would be a mistake.”

The chief executive of Carrefour shares the Government’s sentiments. “We are obliged to find new resources,” said José Luis Duràn last month at the World Retail Congress in Barcelona, Spain. “We must ask how we can work directly with farmers to ensure sustainability, good quality, with reasonable prices.”

Ultimately, said Mr Nandakumar of Lulu, dialogue between regional retailers and importers had thus far been counterproductive. “We are having a blame game here,” he said. “We did our part. Now some kind of initiative from the suppliers and importers must be done to gain the confidence of the country.”

India to relax limits on rice exports

Vivian Salama in Dubai and Surya Bhattacharya in Abu Dhabi

April 24. 2008 8:36PM GMT

 

DUBAI // India will ease its restrictions on rice exports to the UAE, as fears of inflation-driven food shortages spread, according Kamal Nath, India’s Minister of Commerce and Industry. 

During a visit to Dubai this week Mr Nath said that a surplus in this season’s rice and wheat production has reduced the likelihood of lengthy export bans.

“We’ve had record crops,” he said yesterday. “We had 227.2 million tonnes in output of rice, wheat and spices, showing a positive trend.”

Government officials estimate that India will export some 5.5 million tonnes of rice in the next year, up from 3.8 million tonnes last year.

The government had originally imposed the ban last October but lifted it following protests from exporters.

Last month’s decision by Delhi to halt exports of non-basmati rice as a way of curbing skyrocketing domestic prices and reducing the danger of local shortages has received much critisism from UAE retailers, whose businesses rely heavily on sales of the grain.

More than 3.5 million Indian nationals live in the Gulf Co-operation Council (GCC) countries, with 1.4 million in the UAE alone, a population the minister said his government is very sensitive to.

“We are conscious that there is a large Indian population and they need to have rice of Indian origin, so we are looking to find a way out,” Mr Nath said.

The UAE imports 80,000 tonnes of rice annually from countries including India, Pakistan, Thailand, Vietnam and the Philippines. While it is not one of the world’s largest importers of the grain, the significant size of the low-income population that consumes rice makes it a critical issue, according to economists.

“Given their salaries, they are most affected, because they spend a large portion of their income on food,” said Abah Ofon, a commodity analyst with Standard Chartered Bank.

Global rice prices jumped from US$650 (Dh2387) to $1,000 per tonne in the first three months of this year alone, hitting a 25-year high. India’s export prices for basmati rice have also gone up from $1,100 to $1,200 in an effort to reduce external demand.

This week, as members of Dubai’s Indian community gathered to welcome Mr Nath, Yusuf Ali, the chief executive of Emke group, which owns the Lulu supermarket chain, appealed publicly to the minister, saying that the removal of rice bans is an issue of great urgency.

“I am forced to make a request on behalf of the UAE,” said Mr Ali. “If this continues, it could become a severe problem in two to three months.”

Several UAE supermarket groups have sought to ease the burden of inflation by implementing price caps on various basic commodities. Last week Carrefour, the region’s largest retailer, signed a memorandum of understanding (MoU) with the Economy Ministry freezing prices on 52 items. Earlier pacts were also signed with the Union Co-operative Society and Lulu Supermarkets, placing ceilings on essentials such as cooking oil, flour, sugar, milk and eggs.

However, Mr Nath criticized the use of price caps as a tool for easing the impact of inflation, saying that it fails to address the underlying cause of the problem. 

“You can’t have price caps at the retail level, you can only have it at the supplier level,” he said, adding that he believes the inflation level has peaked. 

The problem high prices is not limited to this region, with the UN World Food Programme (WFP) describing soaring food prices as a “silent tsunami.” Yesterday, For the first time US rice prices surpassed the $25 mark per 100 pounds on the Chicago exchange yesterday and Wal-Mart, the world’s largest retailer, has restricted the purchases of certain types of rice at its Sam’s Club warehouse stores.

“I am concerned,” said Khaled Zanul Abid, the general manager of Talal Supermarkets in Jebel Ali. “I’m from India – if I can’t get the rice that I eat then it will be a big problem for me and the same for my Indian customers.”

While fears of rice shortages are of major concern to both consumers and food retailers, local advocacy groups warn that a fixation on one commodity could cause the prices of other products to spiral.

“This is not just limited to rice,” said Mohammed Mohammed, the head of membership for the Emirates Society of Consumer Protection, a subsidiary of the Economy Ministry. “It is so important that the country doesn’t focus only on this issue because, when you close the door on alternatives, you risk creating problems that are far bigger than any country’s abilities [to solve].”

vsalama@thenational.ae

sbhattacharya@thenational.ae

Consequences of price controls will ‘bite you’

By Vivian Salama

The National

 

Dubai // Price caps at a number of the country’s largest supermarket chains are sparking scepticism from industry insiders who say “artificial” price adjustments will not reverse the effects of global inflation.

“With costs going up, there will be shortages,” said Andy Barnett, a professor of economics at the American University of Sharjah. “The worst thing you can do is contain prices at an artificially low level.”

Carrefour is the latest hypermarket in the UAE to sign a memorandum of understanding (MoU) with the Economy Ministry, freezing last year’s prices on 52 basic commodities. Last month, the Union Co-operative Society signed a similar pact capping prices on 16 items, followed by Lulu hypermarkets, which agreed to maintain last year’s prices on more than a dozen essential items.

“The UAE is an importing market as far as commodities go, so of course we are going to experience the burdens of inflation,” explained V Nandakumar, the corporate communications director for Lulu hypermarkets. “When we cap prices, we don’t see it as an economic decision, we see it as CSR [corporate social responsibility], because we are conscious of how inflation is impacting the community.”

Dr Barnett warned that whatever the incentive, the consequences of price controls “will jump up and bite you”.

“Good policy, good economics and good politics are not always the same thing,” he said. “If costs go up and some supermarkets hold prices constant, what happens to them? They’re out of business.”

The prices of staple items including cooking oil, flour, sugar and eggs have been affected by the controls. The latest commodities price list released this week by the Economy Ministry revealed a rise in the cost of various items. Short cucumbers at Carrefour in Dubai, for example, went up from Dh1.55 to Dh1.90 in just a week. Similar price rises are being reported at supermarkets across the region.

Earlier this month, officials with the Economy Ministry announced that 15 items – including dry and condensed milk, frozen and canned vegetables, baby food, chicken, edible oil, rice, flour, fish, meat and tea – were to be placed on a free import list. The Government is also studying the benefits of keeping stockpiles of at least 15 essential items.

“We must start educating people that their normal spending or consumption is different than during crisis times,” said Ahmed bin Shabib el Thahari, first deputy speaker at the Federal National Council, which is conducting the stockpiling study. “Not just when something wrong is happening should they rush to consumption – this will create a direct inflation.”

Crop shortages and lower yields worldwide have fuelled recent riots in countries like Egypt, Indonesia, Cameroon and Peru, with the UN World Food Programme comparing the impact of soaring food prices worldwide to a “silent tsunami”.

Many Government officials estimate that inflation of food prices could soar as high as 40 per cent this year, up from last year’s high of 27 per cent. The Abu Dhabi Department for Planning and Economy has reported a 10.7 per cent jump in inflation last year, driven by rents, transport and food costs. Food, beverages and tobacco accounted for 11 per cent of that increase.

“In every country that tries to control prices, shortages develop,” noted Dr Barnett. “We’ve seen it time after time – there’s no mystery here.”

vsalama@thenational.ae