Wanderlust…

The International Reporting (and Life) Adventures of Vivian Salama

Counting the rising cost

Posted by vmsalama on July 30, 2008

Vivian Salama

The National: July 29. 2008

The world’s insatiable appetite for oil has hit UAE shoppers in their stomachs as well as their wallets with spiralling food costs. And the problem appears to be growing.

Consumers are paying more for everything from a bag of rice to a carton of eggs, simply because it takes oil to run farm machines, power the processing and packaging factories and fuel all modes of transport. 

“Food prices are directly correlated to oil prices,” explains Marios Maratheftis, the head of research for Standard Chartered Bank. “We can’t sell US$140 barrels of oil then expect food prices to go lower.”

In recent months higher oil prices have manifested themselves locally in the form of higher commodities prices, the pain of which is passed on to consumers. 

As the most demanded staple food, rice has soared to unprecedented levels, with global prices up from $650 (Dh2,386) per tonne to a 25-year high of $1,000 in just the first three months of this year. A decision by India’s government to halt exports of non-basmati rice – in an effort to curb prices and avoid domestic shortages – has exacerbated the situation here, driving prices even higher. India’s move has been widely criticised by UAE retailers whose businesses thrive on sales of the grain.

“We have a lot of Indian people here who want to eat their rice, even if the price of basmati rice keeps getting more expensive,” says Burham Turkmani, the general manager of Al Rabiah Trading in Dubai. 

Khaled Zanul Abid, the manager of Talal Supermarket in Jebel Ali, agrees. “I am Indian, so I know how my customers feel. They like to eat certain kinds of rice from India. But they have to eat, even if the price gets very high,” he says. “Everything is becoming so expensive for the people now.”

Food inflation is foremost among concerns of the federal government, which reported a 11.1 per cent jump in inflation last year. Although inflation has largely been driven upwards by rents, food, beverages and tobacco accounted for 11 per cent of the rise and are believed to contribute as much as 30 per cent to overall GCC inflationary pressures. According to the Emirates Consumer Protection Society, domestic food inflation could rise as high as 40 per cent this year.

Experts say cheap ingredients are being passed off as 

“Inflation will not go away,” warns Andy Barnett, a professor of economics at the American University of Sharjah (AUS). 

“Problems will continue indefinitely until people give up and let the underlying adjustment that’s taking place take hold.”

Various measures – some more controversial than others – have been taken to ensure that the situation does not spiral out of control. The initial response was price caps. Earlier this year the Government signed agreements with various domestic retailers including Baniyas Co-operative Society, Carrefour, Union Co-operative Society and LuLu hypermarkets for implementing price caps on items such as chicken, rice, flour and eggs in an effort to combat rising prices set by suppliers. In April, the Government announced it was stockpiling more than a dozen “essential” food items to reduce the likelihood of food shortages, often a backlash after price caps. One month later, 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 in a bid to contain inflation.

“Price caps should be on the suppliers, not the retailers,” says David Berrick, the retail general manager of Abela Supermarkets, which has a domestic headquarters in Abu Dhabi. “They’re implementing these policies on just 16 or 20 commodities. What about the other 20,000 products in our supermarket? 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.”

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