Agthia, the Abu Dhabi company that produces Al Ain Water and flour and feed, plans to build silos to store up to 50,000 tonnes of grain.
The move is designed to provide emergency reserves for consumers in the emirate.
Agthia's decision comes after global food prices hit a record high last month, exceeding the peaks of 2008 when the Federal Government froze prices of key foodstuffs at retail outlets.
The silos are planned to be part of Agthia's new production and distribution complex, which is designed to house a flour mill and a frozen foods plant.
The completed facility will increase Agthia's flour production capacity by 50 per centand will incorporate 10 grain silos storing 5,000 tonnes each. The silos will be owned by the Abu Dhabi Food Control Authority, said Ilias Assimakopoulos, the chief executive of Agthia Group.
"The silo project is undertaken by the Abu Dhabi Food Control Authority, which has been mandated by the Government to address some of the food security matters … At any point in time, we will make sure that a certain amount of wheat is available in case of emergency," he said at ground-breaking ceremony for the complex.
The facility in Abu Dhabi's Al Wathba area will be built at an estimated initial cost of between Dh48 million (US$13.06m) and Dh50m, and is due to start production in the fourth quarter of this year. The frozen foods plant is expected to be operational by the second quarter of next year.
The UN Food and Agriculture Organisation's food price index, which incorporates the average prices of meat, dairy products, cereals, cooking oil, fats and sugar, reached 215 points last month, up 25 per cent from the same month in 2009. This surpassed the previous record of 213.8 points in June 2008, the height of the 2007-2008 food price rise that triggered riots in countries including Egypt and Haiti.
Meanwhile, the food security committee at the Riyadh Chamber of Commerce on Sunday called for more storage facilities for wheat, barley, soya beans, sugar, rice and other food commodities to cushion the effects of price rises, according to Bloomberg.
Retailers in the UAE say prices of certain items in the shops such as sugar and oil have approached 2008 levels but not yet reached "extraordinary" levels. However, many expect consumers to feel the pinch later this year.
Mr Assimakopoulos said he did not anticipate price rises in the company's bread and animal-feed products, because of long-standing subsidies provided by the Abu Dhabi Government.
"For the time being, as a result of this government initiative to protect the consumers, we don't anticipate any major threat to the retail prices. Clearly, the burden has been absorbed by the Abu Dhabi Government." Agthia has not raised any of its prices but may review its prices in the future if other commodities become costlier, he said.
"Outside of grains, the only other element in terms of raw material that would have an impact on us is sugar, but its not a primary activity [for us] … it depends on how aggressive these raw material increases are.
"We might have to reflect this into our price. We haven't taken any price increases yet, but we might in 2011. We will see how the pricing of raw materials develops."