How to cope with high food prices

In a time of rising food prices, when the Government has asked big retailers to cut or freeze some retail prices, we should look for more effective longer-term approaches to the problem.

At least two grocery retailers have decided that keeping prices low on basic items, at a time of rising world food prices, is a form of social responsibility. That is a reasonable assumption because price controls benefit so many, but the urgent issue of food policy calls for a more nuanced approach.

The UAE imports 85 per cent of its food, and so we are vulnerable to global price swings. Of late, the trajectory has been relentlessly upwards: the cereals price index kept by the UN's Food and Agriculture Organisation (FAO) has risen 71 per cent in the last year; the FAO says one billion human beings "live in chronic hunger".

To shelter the UAE from this potentially dangerous trend, the Government has been emphasising domestic food production and security of supply, both sensible approaches.

Now it has also asked big retailers to slash or eliminate their normal markups on as many as 400 staple foods and household basics. "Locked" retail prices could even mean losses on those items.

Most of these companies have complied, but with just the level of enthusiasm you would expect. As The National reported yesterday, some will make up the shortfall by reducing charitable giving, which is bad news for the organisations, schools and community-development projects that have been receiving those payments.

The Government's request is supposed to expire at the end of the year. And so it should, but people naturally become powerfully attached to artificially low prices. Between now and the end of the year, then, everyone involved should search earnestly for better approaches.

A subsidy, whether paid by a government or by companies, is at best a blunt tool. The wealthiest corporate director, for example, can now save money when his housekeeper buys him eggs.

And a subsidy regime distorts the market, creating inefficiencies, stalling innovation, increasing bureaucracy and stifling healthy competition. This policy, for example, may challenge mid-size shops to match artificially low prices, although smaller corner shops with their own market niche should be less affected.

The most promising approach may not involve new constraints on the free market in food, but rather direct support, perhaps delivered via employers in most cases, paid directly to those who truly need the help. That approach would certainly be no panacea, but there is no easy solution to the problem of keeping people fed.