Wanderlust…

The International Reporting (and Life) Adventures of Vivian Salama

Retailers Seek Relief from Importers

Posted by vmsalama on May 2, 2008

 

By Vivian Salama
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.”

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