Prices of basic food staples such as bread and sugar will be heavily cut across the UAE for one month - by up to 40 per cent - despite escalating global food prices pinching retailers' profit margins.
The cuts come even though some businesses say they will have to increase their losses on certain products to comply with the deal, agreed between retailers and the Ministry of Economy.
Prices of food staples ranging from wheat to cocoa have surged in recent months. The combination of bad harvests and a global economic rebound have fed supply pressures. As a result, consumer protection officials have stepped up their monitoring of prices.
"We want to protect consumers from any price rises," said Hashim al Nuaimi, the director of the Ministry's consumer protection department, on the sidelines of the launch of Gulf Consumer Protection Day in Abu Dhabi yesterday.
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As part of the initiative, Lulu, Union Co-operative Society and other retail chains have agreed to lower prices of staples such as rice, sugar, cooking oil and bread by between 20 and 40 per cent for one month from yesterday. In all, more than 1,000 varieties of food items will be lowered across the major retailers.
While the initiative is an annual arrangement, this year's action comes against a backdrop of particularly acute price pressures facing consumers.
World food prices were reaching "dangerous levels" and could hinder political reform in Egypt, Tunisia and the Middle East and Central Asia, Robert Zoellick, the president of the World Bank, warned. Prices in January were 29 per cent higher than in January last year and 3 per cent below their previous peak in 2008, according to the World Bank.
Global sugar prices reached more than 32 US cents a pound in January, nearly 73 per cent higher than their level of last August, according to Sugar, Free Market, Coffee Sugar and Cocoa Exchange data.
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Lulu has made a loss on sugar sales and a number of other products since last year, said Abu Bak'r, the regional manager of retail operations at the chain.
For example, it sells samoon, a type of Middle Eastern bread, for Dh1 (27 US cents), even though it costs Dh1.10 to produce.
"We don't want to disturb the customers so we try to absorb the cost of certain items," Mr Bak'r said. "We try to make sure that price increases are not 100 per cent passed on to consumers." He said the supermarket pushed up prices only after consultation with suppliers and the Ministry's consumer protection unit.
Inflation is picking up across many markets as the cost of food surges. Rising prices prompted protests by tens of thousands of people in India last month.
In the UK, food producers and supermarkets were this week blamed for prices rising at more than justified levels. The Swiss bank UBS said UK prices were increasing more than in most developed economies.
In contrast, in the UAE, lower food and housing costs helped to push inflation down to 1.6 per cent on an annual basis in January, data from the National Bureau of Statistics shows. Inflation reached a peak of 12.3 per cent in 2008.