Retailers urged to pass on savings

Government to meet suppliers and vendors to ensure international trends are matched.

A grocery shopper looks at rice at a Lulu Hypermarket. Caps on basic goods have been lifted as prices have fallen.

The Government is exerting pressure on retailers to pass on savings on the cost of food to consumers, but has no plans to fix prices, a senior official from the Ministry of Economy said today. "We are monitoring the situation but we have no plans to fix the prices now so long as they are going down," said Mohammed al Shihi, the director general of the ministry. "Internationally, prices are going down. Why fix them now?

"We are meeting with the vendors and the suppliers in order to make sure that the drops in the prices are matching the international trend." Commodity prices rose to record levels last year, fuelled by high oil prices. This trickled down to consumers' grocery bills in the UAE, which imports about 80 per cent of its food. Inflation also hit a record high of 12.2 per cent in March last year. In response, the ministry signed agreements with major supermarket chains to cap the prices of basic goods, such as oil and rice.

But by the end of last year, the price of oil dropped and market forces began to ease. The IMF predicted last month that UAE inflation would be 10.8 per cent this year. "Growth has come to a screeching halt," said Andy Barnett, a professor of economics at the American University of Sharjah. "And you don't get the upward pressure on price, which comes from being in a huge growth economy." Mr Barnett said eliminating caps was right because they destabilised the market in the long term.

Georges Mojica, the general manager of the Abu Dhabi Co-operative Society, also agreed with the ministry's plan to forgo caps, but said he did not think prices on the international markets were dropping significantly. "Recently, oil has come down, flour has come down, milk powder has come down, but in terms of grains it is probably going up," Mr Mojica said, adding that the ministry should keep working with suppliers to monitor prices.

Mr Barnett said while some commodity prices might continue to rise, it would not be at the same rate as last year. He said eliminating price caps was the right approach, but it would take some time before shoppers felt the effects. "Price decreases tend to lag," he said. "They're not going to change unless their sales are going down and a big inventory forces them to deal with the situation." Naeem Ghafoor, the chief executive of Skyline Retail Services consultancy, said there should be some level of government control on food because food was a necessity.

"The retailers can turn around and say, 'landlords are not reducing rents, costs are high and therefore we need to maintain our margins'," Mr Ghafoor said. Jannie Holtzhausen, the chief executive of Spinneys Dubai, said he had never signed a price-cap agreement because he did not think they worked. Mr Holtzhausen said his stores dealt with suppliers directly and passed on any savings to customers. He estimated an average food basket at Spinneys had gone down by 1 or 2 per cent in the past six months, in line with global prices.

"We've had 46 years in the UAE and plan to have the business for the next 46 years. We're not going to take short-term gains at the expense of our consumers," Mr Holtzhausen said. V Nandakumar, the corporate communications manager at Emke Group, which runs Lulu Hypermarkets, said price caps were no longer a necessity, unlike last year. "The prices are very much in the reach of people, especially food stuff and essential commodities," Mr Nandakumar said.

Mr Barnett said he expected prices to continue falling, but at a slow pace. "For the immediate future, we're just going to walk along," he said. "Not much is going to change until the recovery starts in earnest." @Email:[e-mail] [e-mail]