UAE shoppers to feel pinch as price of food rises again

The brief let-up in rising global commodity prices has provided little respite to one of the biggest UAE food companies, Agthia, which is warning of future price increases on the shelves.

The volatility in raw materials has affected the profits of Agthia. Above, farmers harvest rice in Indonesia. Enny Nuraheni / Reuters

The brief let-up in rising global commodity prices has provided little respite for one of the biggest UAE food companies, which is suffering squeezed margins and has warned of future price increases on the shelves.

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Prices of basic food commodities, such as sugar, grains and dairy produce, have fallen in recent months after reaching all-time highs earlier in the year.

But these decreases have yet to have an effect on the profits of food companies, which are still being squeezed as other raw materials costs rise.

"A wide range of raw materials have increased … in 2011 and this has undoubtedly put pressure on our margins," said Ilias Assimakopoulos, the chief executive of Agthia, a food company in Abu Dhabi that recorded sales last year of more than Dh1 billion (US$272.2 million). "This has affected gross margins and profits for the year."

Agthia, which is listed on the Abu Dhabi Securities Exchange, increased sales 14 per cent in the first nine months of the year, but profits fell 24 per cent to Dh60m as margins decreased 4 percentage points on higher costs.

The company's share price has fallen 20 per cent from Dh2.1 at the start of the year to Dh1.67 at close of trading yesterday.

Mr Assimakopoulos said the fourth quarter would be the best of the year, but full-year profits would be affected by rising costs.

"There will be need for some sort of price increase in the future," he said.

The UN's Food and Agriculture Food Price Index dropped to 216 points last month, down 4 per cent from September and 9 per cent below its peak in February.

The index, which is made up of a basket of 55 food commodities, has consistently declined since June, but it is still 5 per cent above October last year.

Despite the continued fall in food prices, volatility in raw materials costs has affected profits. The flexibility of companies in dealing with the rising cost of commodities is also somewhat hampered by government policy.

Mr Assimakopoulos said Agthia had taken part in discussions with UAE government authorities in which it was made clear any price increases would be bad for the economy.

"Food inflation is of great concern these days in the region in general," he said. "So, obviously, the ability for us to pass on that input cost has been hampered at this time."

Mr Assimakopoulos expects commodity prices to remain at historically high levels for the foreseeable future.

Agthia has about 1,600 employees in the UAE across its food and beverage operations, which include producing and distributing Al Ain water, Capri-Sun drinks, processed fruits and vegetables and animal feed.

The company this week began the production and distribution of the French brand Yoplait, and it plans to start selling the US brand Chiquita next month.

Yoplait claims to be the second-largest brand in terms of sales in the fresh dairy product category worldwide, and the biggest in huge markets such as the US and Australia.

Mr Assimakopoulos said the fall in the company's share price was likely to be an indicator of the overall investment environment and global economic fears, as opposed to any negative sentiment about the individual stock.

"We remain optimistic that we will hit profit delivery in 2012," he said.

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