Lulu works to rein in high food prices

The Federal Government reported a 10.7 per cent jump in inflation last year driven by higher rents, transport and food costs.

Emke Group, the parent company of Lulu hypermarkets, is in talks with foreign food suppliers in an effort to alleviate inflation-driven price increases. The talks are the latest cost cutting measure to be taken by the Abu Dhabi-based company as volatile oil prices continue to send the costs of basic commodities higher.

"We are trying to minimise importing - we are negotiating with suppliers to eliminate some of the costs of middlemen," said Ashraf Ali, the company's executive director. "There are a lot of ups and downs in the market right now, not just in the UAE but everywhere, so we are trying to do what we can to assist people and keep up with the market accordingly." The company is negotiating deals with food suppliers in Thailand, Egypt, Pakistan and India. Commodities pass through an operational food chain from their source - the farms - to traders and eventually to retail shops around the world. Every party in the transaction keeps about five per cent of the margin, and this can prove costly for countries such as those in the GCC, which rely almost entirely on foreign sources for food.

"We believe it will make a difference financially to cut some steps out of the process, so we are talking to these suppliers to see what can be done," Mr Ali said. In April, Lulu hypermarkets signed a memorandum of understanding with the Ministry of Economy to freeze prices on 32 food items - including rice, sugar, oil, milk and poultry - for the rest of the year. Several of the country's major supermarkets have followed suit. The latest is Choithram, which this week capped 17 basic items including wheat, flour, canned tomatoes, mushrooms and cooking oils. Earlier this year, Carrefour, Union Co-operative Society and Bani Yas Co-operative Society also placed ceilings on various staple items.

The Federal Government reported a 10.7 per cent jump in inflation last year driven by higher rents, transport and food costs. According to the Emirates Society for Consumer Protection, inflation on domestic food prices could rise as high as 40 per cent this year. "Everybody has to eat, so the higher prices may not affect business but the supermarkets are trying to help our customers so that the inflation is easier on their pockets," said Mr Ali, adding that his company was incurring financial losses from the price caps.

Mr Ali praised the Government's efforts to build the country's strategic food reserves via overseas farmland purchases. Abu Dhabi has already finalised a deal to buy land in northern Sudan for the cultivation of alfalfa and other basic products, and it is in talks with numerous other governments, including those of Egypt, Pakistan and Kazakhstan. "It is a good idea to buy farms because it builds security and eliminates the costs of middlemen," said Mr Ali.

Yousef Ali, the company's chief executive and a brother to Ashraf Ali, has publicly pleaded with governments in India and elsewhere to lift export restrictions on certain products to alleviate domestic burdens. Many in the retail industry have expressed concern that by capping prices these major hypermarkets, which already offer customers prices below markets levels, will deal a major blow to convenience stores that are struggling to keep up with skyrocketing food costs.

Ashraf Ali acknowledged the concern, but said the demand for smaller, independent retailers would continue. "We are not trying to abolish them," he said. "Definitely, they cannot compete with the prices, but the convenience factor - near to home - will always sustain." [e-mail]