IMPACT OF RISING FOOD/COMMODITY PRICES - KUWAIT

UNCLAS SECTION 01 OF 02 KUWAIT 000488

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TAGS: EAGR ECON ETRD KU
SUBJECT: IMPACT OF RISING FOOD/COMMODITY PRICES - KUWAIT

REF: STATE 39410

KUWAIT 00000488 001.2 OF 002



1. Summary: Rising food prices and agricultural commodity
prices are having a significant impact on the economy in
Kuwait, especially with regard to inflation. Kuwait has
experienced an almost 60 percent increase in food prices in
the last year. Prices have dramatically increased in the
past few months. The GOK has taken some steps to reduce the
burden of the price increases on local families. The impact
of the price increase has mostly impacted expatriates (who
make up approximately two-thirds of the residents of Kuwait)
as Kuwaiti nationals benefit from a system of food subsidies.
A few recent government initiatives such as eliminating the
requirement for importers to use an agent or distributor may
help increase import of food and agricultural goods into the
country and reduce prices in the market. An across-the-board
pay raise for Kuwaiti nationals of 120 Kuwaiti Dinars (KD)
(450 USD) and 50 KD (190 USD) for expatriates has also
nominally helped mitigate the rapidly rising cost of living
in Kuwait. End Summary.


2. Prices of basic food items like rice, potatoes, milk and
corn oil have risen by a minimum of 40 percent and as high as
60 percent in some cases. The price of rice has risen from
200 fils (76 US cents) per kilogram (kg) to 400 fils (1.52
USD) per kg. This is a 100 percent increase in price over
the last year. The price of potatoes has risen from 400 fils
(1.52 USD) per kg to 650 fils (2.47 USD) per kg. The price
of corn oil has risen by 46 percent, from 650 fils per liter
to 950 fils per liter (3.60 USD). Flour has also risen by
approximately 25 percent to 150 fils per kg (57 US cents).


3. The government of Kuwait has subsidized prices of main
staples such as rice, sugar, flour, bread, powdered milk,
edible oils and lentils for a number of years. Kuwaiti
nationals benefit from this arrangement. Every Kuwaiti
family is issued a government ration card that enables them
to receive a monthly ration of subsidized staples. For a
government paid commission of five percent, the Kuwait Flour
Mills and Bakeries Company purchases and stores staple goods
through public tenders and delivers the products to assigned
distribution centers. Expatriates, including the unskilled
labors from poor countries like Bangladesh and India, are not
eligible for this program.

4Q Following is a chart of subsidized prices of staples that
are available to Kuwaiti nationals:

Item Subsidized price Market Price Difference
(in KD) (in KD) (in KD)
-------------- --------------
Milk Powder 1.05 (4.00 USD) 5.5 (21 USD) 4.45 (17 USD)
Rice 0.12 (0.45 USD) 0.35 (1.30 USD) 0.23 (0.87
USD)
Sugar 0.09 (0.35 USD) 0.15 (0.57 USD) 0.06 (0.23
USD)
Lentils 0.25 (0.95 USD) 0.5 (1.90 USD) 0.25 (0.95
USD)
Corn Oil 1.05 (4.00 USD) 2.0 (7.60 USD) 0.95 (3.60
USD)
(2 ltrs)


5. On February 19, the Ministry of Commerce and Industry
issued a regulation that allows import of food items by any
importer without the need to use a local agent or
distributor. This measure is intended to stimulate import of
food staples from not just the region but from around the
world. In March, after months of debates over actual rates,
the GOK announced an across-the-board pay increase for
Kuwaiti nationals of 120 KD per month (450 USD) and 50 KD per
month (190 USD) for expatriates. This pay increase, which is
injecting new inflationary pressure into the economy, applies
to both the public and private sectors. In April, the GOK
announced plans to maintain a food reservoir to address
continuing public concern over rapid inflation, especially in
food prices.


6. Kuwaiti consumer cooperative societies, which account for
70 to 80 percent of retail food sales, have declared that
they are trying to curb price increases by eliminating the
middleman and buying directly from suppliers. The
cooperatives are reportedly sending buyers to countries in
Asia, Europe and Africa in an effort to negotiate agreements
and possible price concessions with major food exporters. So
far this effort constitutes only a public relations gesture,
and it is impossible to predict what impact, if any, it will
have.

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KUWAIT 00000488 002.2 OF 002


For more reporting from Embassy Kuwait, visit:
http://www.state.sgov.gov/p/nea/kuwait/?cable s

Visit Kuwait's Classified Website:
http://www.state.sgov.gov/p/nea/kuwait/
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Jones