UAE feels the pain of rising staple food costs

The hike in fuel costs and the decline of the dollar have combined with disasters and crop failures to hurt consumers at the check out.

Abu Dhabi, United Arab Emitrates --- August 15, 2010 --- Shoppers browse and shop for vegetables after a stop by the Minister of Economics at the Abu Dhabi Co-operative checked food prices on Sunday, August 15, 2010.  ( Delores Johnson / The National )
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DUBAI // The prices of basic foods including rice, sugar, pasta, cocoa and cooking oils have jumped in the UAE in the past year, often at a faster rate than in some other parts of the world.

Cooking oils and fats now cost Dh7.5 a kilogram in the UAE, up 14 per cent on a year ago, according to figures from Euromonitor International. However, in Germany the price fell by two per cent, and in Italy it was unchanged.

The price of pasta increased in the UAE by one per cent from a year ago. But in Britain it fell by 3.5 per cent, and in Italy by 0.8 per cent, said Euromonitor.

While the differences might not sound much, the price rises accumulate in terms of a whole shopping basket and over time. Rice, for instance, has for years been increasing by far more in the UAE than elsewhere. It rose by an average of 8.9 per cent a year from 2005 to last year, said Euromonitor, driven up by rising petrol prices, poor crops and natural disasters.

But in France the rise was only 2.4 per cent, and in Germany 3.6 per cent, meaning the UAE saw prices increase by more than 50 per cent, compared with just 12 per cent in France and 20 per cent in Germany.

Much of the blame, according to Sana Toukan, a research manager at Euromonitor International, can be put down to the rising cost of oil, which hits the UAE particularly hard because almost all the country’s food is imported.

Raw materials like sugar and cocoa have also become dearer, with cocoa climbing from around US$2,600 (Dh9,500) per tonne in January 2009 to US$3,500 by the end of that year – a 35 per cent rise.

“As manufacturers and companies in the market struggled to cope with the effects of the global financial crisis that started in 2008, they pushed their prices up in an attempt to make more profit,” said Ms Toukan.

There had also been a shift towards premium products. “The rising health trend is another factor pushing unit prices higher,” she said. “More people are becoming aware of the benefits of a healthy diet, shifting to healthier and higher priced products such as fortified oils and fats and premium dark chocolate.”

The Euromonitor findings concur with a report this week from the Statistics Centre Abu Dhabi, which said that in the first three months of this year, inflation of 2.8 per cent was driven by higher food and beverage prices. The agency reported double-digit percentage increases in the prices of meats, vegetables, fruit and seafood.

Tarek Coury, an economist at the Dubai School of Government, said the difference in prices between the UAE and Europe were also linked to the exchange rate of the US dollar. “During the height of the economic crisis the dollar strengthened against most currencies including the euro because it was seen as a stable reserve currency. However as the crisis has dissipated, particularly since last summer, the euro has gained value.

“This means that because the dirham is pegged to the dollar it too has lost value against the euro. If an import cost €10 last year, it was about US$13. But now it’s US$14, which means it’s more expensive in dirhams as well.”

He said the same applied to all goods the UAE imports from currencies that have strengthened against the US dollar.

The biggest hikes, he added, had been in unprocessed foods such as fresh fruit and vegetables, whose supply was most vulnerable to natural disasters and poor crop yields. “Processed foods have profit margins built into them because of the preservatives and packaging,” he said. “That means manufacturers can absorb price fluctuations and still come out with a profit.

“What consumers hate the most is continually changing prices for their regular shopping, even more so than high prices, which is why manufacturers try to keep processed foods as stable as possible.”

And rising demand from developing countries such as China is a factor, too. “It boils down to simple economics of demand and supply,” said Simon Thomson, an analyst with the British financial website “So long as the world population goes on increasing and getting wealthier, the pressure on supply of food and better quality food will go on increasing and prices accordingly.”

Sangeeta Kaur, an Indian expatriate mother-of-two who lives in Dubai, said the cost rise on basic foodstuffs was taking its toll on the family purse.

“The prices just seem to be going up and up. I notice sugar going up by 10 fils, then some fruits going up by 25 fils. It doesn’t seem like a lot but this money starts to add up and if you are on a lower income then it starts to get tough.”

The Facts

The average annual rise in prices between 2005 and 2010:

Canned/preserved food (all) UP 1% a year

Canned/preserved tomatoes UP 2.6% a year

Chilled processed food UP  0.9% a year

Confectionery UP 3.7% a year

Gum UP 3.5% a year

Dried processed food (all) UP 8.2% a year

Rice UP 8.9% year

Oils and fats (total) UP 3.6% year

Source: Euromonitor

It's bad but it could be worse, one family says

DUBAI // The price of food may be rising, but Stephanie Inglesfield says that compared with her native France, prices here are reasonable.

“If you look at multipack of Lay’s chips, which I used to pay Dh10 for. It’s now about Dh12.95, and a can of Coke has gone up by 50 per cent to Dh1.50,” the mother-of-four said. “That sounds like a lot but when you compare it to European prices, it’s still much cheaper.”

It helps that cigarettes are so cheap. Her preferred Gauloises Blondes cost Dh4 a pack here – a tenth of the price in Europe.

“Maybe I have been lucky in that what I usually buy during my weekly shopping hasn’t been that badly affected by price rises.

“More puzzling for me are the price discrepancies between grocery stores on the exact same items. Sometimes, on items like peanut butter and imported biscuits for example, there can be a good 30 per cent difference from one shop to the other. I don’t get that.”

She could not understand, either, why those prices continued to rise during the economic crisis, while at the same time rents in Dubai have been falling.

“Compared with many other countries, we are living in a pretty good place, grocery-wise. I know for many people the price rises they see have a big impact on them. But for me, compared to how much more expensive food is in Europe, I think I am pretty lucky.

“The way I look at it is that my budget is probably better off now than three years ago, with sky-high rents and school fees that were crazy. Those savings mean I haven’t really noticed the food price increases.”