Price curbs take bite out of food costs

The Government is now more assertive in limiting the prices of staples and has given retailers more leeway to choose suppliers - all to help the consumer. But could the controls also be harmful?

Customers shop for food at the Airport Road branch of Fatima Supermarket. In their offices above the branch, executives of the supermarket chain now have to jump through more regulatory hoops to ensurShow more

Like hundreds of Abu Dhabi residents, Elwyn Geraint Lloyd shops every week at Fathima supermarket on Airport Road.

He says government intervention to lower the prices of basic foods, particularly meat, has been a great help to him and his six housemates in their efforts to save some of their earnings.

"Of course it's good for customers," says Mr Lloyd, 21, who is from the Philippines, as he stands at the meat counter in the small supermarket. "I buy a lot of meat, especially beef. I shop in bulk for the month, so I'm saving a lot."

He says government measures to control costs save him 5 to 10 per cent each week, depending on what he is buying.

This has been a familiar story for many food shoppers across the country this year because of the Ministry of Economy's tightened control on the food market.

In their offices above the Fathima branch on Airport Road, executives of the supermarket chain now have to jump through more regulatory hoops to ensure that prices for basic commodities in their stores are not increased without ministry approval.

The Ministry of Economy is introducing nationwide an online price monitoring system that involves supermarkets reporting the prices of 200 basic goods online every Tuesday.

Failure to enter the price of any price-controlled item into the online system prompts daily reminder emails from the ministry.

"The ministry is doing a very good job to control prices," says Fazal Valiyaveetil, the purchasing manager at Fathima. "This should have started years before. Control affects the margin in the outlets but it's good for the consumer and the Government to reduce inflation."

He added that the burden of keeping prices low had been transferred from retailers to importers, because supermarkets' weekly online reports now included the prices at which they bought their goods and retailed them.

The Electronic System for Goods Monitoring, which was announced at the end of February, monitors the prices of certain goods at outlets including the cooperative societies, Lulu Hypermarket, Carrefour, Spinneys and wholesale suppliers so the Government can ensure no party increases prices without approval.

Last May, retailers across the country agreed to fix or lower the prices of 400 basic items until the end of 2011.

The electronic monitoring is the latest effort by the Government to control retail prices and minimise the effect of global food inflation on local consumers.

Retailers have to report the prices of rice, wheat, poultry, sugar, milk, tea, meat, eggs, edible oils, fish and non-food items such as cosmetics.

In January, the Government also looked to increase competition among suppliers by liberalising the trade in 12 kinds of food products including dairy, juices, meats and oils.

This means retailers can now go to any importer of a food product or branded good, rather than using one exclusive distributor as they did previously.

If a retailer in the past had to use Unilever to source its branded shopping detergents or personal-care products, that outlet can instead now use any importer that might also be undercutting the global consumer goods giant on price.

Fathima now deals with 1,500 suppliers rather than the 500 with which it did business before the Government liberalised trade.

"We are dealing with suppliers all over the UAE," says Mr Valiyaveetil. "We will start dealing with more suppliers."

Lulu Hypermarket is now seeking suppliers all over the world rather than using go-between importers and distributors.

The effect of the Government's moves to reduce food prices has been borne out in The National's analysis of the sector.

The price of our basket of branded goods such as Kellogg's cornflakes, Lipton tea bags and Red Bull has fallen 7 per cent since December, and staple foods such as rice, flour and meats have dropped 15 per cent.

"The Ministry of Economy has had controls in place that will make a difference in terms of a comparison," says Giyas Gokkent, the chief economist at National Bank of Abu Dhabi. "The Ministry of Economy recognises that maybe it makes sense to focus on a limited range of staple foods.

"There's a focus on keeping things tight. But at the end of the day, it boils down to what the impact will be on producers. This is why, if it becomes negative for them, they will pull out, circumvent it or pass it along."

Global food prices have come down about 10 per cent from the all-time highs they reached in February last year, and this year prices have been stable.

The UN Food and Agriculture Organization's Food Price Index averaged 216 points last month versus 215 points in February.

Oils and fats were the only foods whose prices increased notably, up 2.5 per cent, while dairy goods fell and cereals, sugar and meats were mostly unchanged.

With help from the Government, thedeclines in global prices seem to have fed through to shoppers in the UAE. Local prices fell in the past quarter.

But analysts say the extra dirhams in shoppers' pockets will not be there for long, because demand for meats, dairy products and edible oils is eventually going to burgeon as the consumer economies of China and India continue to grow.

"The era of cheap food is over," says Farouk Miah, an analyst at NCB Capital. "Over the next decade, the average price [of food] will be higher than the last. But in the short term, we believe food prices should stabilise. That's a positive for companies [in the Gulf]."