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 -------------- SUMMARY -------------- ¶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. -------------- Demand and Supply -------------- ¶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. -------------- Political Impact of Rising Food Prices -------------- ¶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. -------------- Economic Impact -------------- ¶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. -------------- Factors Behind Price Increases -------------- ¶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. -------------- Government Policy Response -------------- ¶6. Despite a stated government policy of trying to ease the negative impact of inflation in general and food rising DOHA 00000349 002 OF 002 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. -------------- Comment -------------- ¶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