One bright spot stands out in all the economic woe: food is set to become cheaper. "Petrol prices have gone down and the dollar's up, so prices should go down," said V Nandakumar, the corporate communication manager at Emke Group, which runs LuLu Hypermarkets. "But it might not happen right away because we bought some of the products some time back, when the cost was high. So for the actual effect to take place will take some time."
As families grapple with tighter credit conditions and growing unemployment prospects, lower food costs will be a welcome relief. Last March, inflation in the Emirates hit a record high of 12 per cent - up from 11.1 per cent in 2007, which was then a 20-year high. A surging oil price and a weak dollar last year meant soaring inflation in a country that imports 80 per cent of its food. Rice prices in particular rose to unprecedented levels worldwide, ballooning from US$650 (Dh2,386) per tonne to a 25-year high of $1,000 in the first three months of last year.
Last April, the Government began signing agreements with major food retailers to freeze prices of basic commodities such as cooking oil, flour and eggs at 2007 levels. "It was very difficult," said Mr Nandakumar. "On one side, we had to keep the prices very affordable for the customers, while at the same time trying to get product into our stores." Some retailers struggled to honour the voluntary price caps and began selling items at prices above the caps. Others simply pulled certain items off the shelves to avoid taking a loss.
The Abu Dhabi Government even began looking into purchasing farmland in Pakistan and Egypt so it could produce its own crops and reduce the dependence on food imports. These plans are now on hold because of tight credit markets. Retailers received a reprieve late last year when demand for oil started to dip, alongside the price, and food prices returned to the levels of June 2007. The Ministry of Economy then signed agreements with major retailers to reduce the prices of basic foodstuffs to reflect the lower importing costs, said Dr Hashim Saeed al Neaimi, the director of the Department of Consumer Protection. Prices would be lower, but would not drop drastically, he said. "And it will take some time."
The latest Department of Planning and Economy index confirms that prices have fallen. About 44 per cent of items in a typical basket of food staples - including meat, eggs and vegetables - dropped in price between the last week of November and the third week of December. Although oil had started to rise again, the price would continue to be volatile, said Andy Barnett, a professor of economics at the American University of Sharjah. And with demand for oil expected to fall, food prices could fall further, he said.
Mr Nandakumar said he expected more food price cuts at the hypermarket chain early this year, but hoped prices would then stabilise. "We all know prices have come down," he said. "We all know that the economy has a recession, globally. We are not isolated here. We hope that the prices come down and things become easier for everybody." aligaya@thenational.ae