RESPONSE: IMPACT OF RISING FOOD/COMMODITY PRICES -

UNCLAS SECTION 01 OF 02 DOHA 000349

SIPDIS

SIPDIS

DEPT FOR EEB/TPP/ABT/ATP JANET SPECK

E.O. 12958: N/A
TAGS: EAGR TBIO ECON QA
SUBJECT: RESPONSE: IMPACT OF RISING FOOD/COMMODITY PRICES -
QATAR

REF: STATE 39410

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SUMMARY
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1. Prices of all food/agricultural commodities are
dramatically rising in Qatar. Analysts and businessmen
attribute the price increases to a variety of factors,
including higher prices in the countries of origin, higher
transportation costs, salary and wage increases, and
inflation. At the same time, many consumers accuse merchants
of exploiting the situation. Supplies of these commodities
have remained stable, and there have been no demnsratable
shifts in consumers' attitudes or signiicant political or
economic impacts. One definie outcome is higher inflation,
and the Governmen of Qatar so far has done little to
constrain riing market prices. End Summary.

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Demand and Supply
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2. Prces of all food commodities have risen dramatically in
Qatar in recent months. Some of the most important and
essential commodities affected are rie (100 percent),
cooking oil (19 percent),meat 12 percent),dried milk (20
percent),and all kinds of vegetables and fruits (100-150
percent). Qatar is a net importer of food commodities with
very little domestic production. Increasing prices are
affecting expatriates in addition to relatively wealthy
Qatari citizens. Increasing numbers of residents are
traveling to neighboring Saudi Arabia to purchase food items.
Price rises have not significantly affected the supply of
food commodities, nor have there been remarkable shifts in
consumers' attitudes and behavior. Store managers and
vegetable and fruit vendors told Econoff they were still
selling virtually the same variety and quantity of
foodstuffs.

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Political Impact of Rising Food Prices
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3. No public protests or violence occurred in response to
rising food price rises. But the situation prompted wide
press coverage and a nation-wide outcry from municipal
council members and regular citizens for the government to
take urgent measures to constrain prices. Skyrocketing food
prices also prompted a prominent Islamic scholar, Dr. Yousuf
Al Qaradawi, to call publicly on the government to control
prices of basic commodities. Qatar does not regulate imports
of biotech crops or foods containing biotech ingredients, nor
does it produce biotech crops. Qatar established a biosafety
committee last year to address biotech concerns.

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Economic Impact
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4. Rising food prices will have no significant economic
impact on wealthy Qatar's broader economic prospects.
Despite inflationary pressures and a newly enacted
expansionary budget that will further feed inflation, the
outlook for the Qatari economy remains positive. GDP growth
is projected at 15.5% (USD 73.7 billion) in 2008. Trade
balance surpluses reached USD 17.6 billion in 2006, an
increase of 12.2% over 2005. Given rapidly expanding energy
production and soaring oil prices, Qatar's trade surplus is
expected to grow further. Rising food prices, however, will
definitely feed inflation.

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Factors Behind Price Increases
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5. Analysts and businessmen attribute the sharp rise in food
commodities prices to a variety of factors, including rising
international prices of food and agricultural commodities,
higher transportation costs, and double-digit inflation in
Qatar due to a number of recent wage and salary hikes in
response to high inflation. Many consumers also accuse
"greedy merchants" of exploiting the situation.

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Government Policy Response
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6. Despite a stated government policy of trying to ease the
negative impact of inflation in general and food rising

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prices in particular, the only measure Qatar has taken so far
is a decision to increase the subsidies for the flour used in
making bread. Despite a 20 percent decrease in the price of
flour thanks to the higher subsidies, the selling price of
bread in the market remains unchanged. Qatari officials have
expressed the government's intent to subsidize still more
food commodities in the near term, but no details have so far
been released. The government also launched a new service on
the Ministry of Economy and Commerce's website called "Where
to Buy," which lists shopping malls and stores offering the
lowest prices in the hope that this will encourage other
vendors to lower their prices. Qatar participated in a
recent meeting of Gulf Cooperation Council countries at the
undersecretary level addressing rising prices for food and
essential commodities. The meeting produced recommendations
aimed at encouraging the private sector to invest in food
production, especially in other countries that have high
comparative advantages in food production. The
recommendations are expected to be discussed further at a
ministerial level next month.

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Comment
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7. Increasing food and agricultural commodity prices in Qatar
are not expected to push residents into poverty or cause
significant hunger; nor will they significantly affect the
balance of payments of this increasingly wealthy country.
However, additional price hikes will further feed inflation
and force the country's private sector to face the growing
challenge of how to keep its expatriate workforce from
leaving the country, faced as it is with a steadily
increasing cost of living. One possible outcome is that
consumers are more willing to consider buying genetically
modified products, if offered at a lower price, in the
current highly inflationary environment.
RATNEY