UAE GOVERNMENT TARGETS FOOD PRICES

UNCLAS ABU DHABI 000440 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ECON EAGR EFIN ETRD AE SUBJECT: UAE GOVERNMENT TARGETS FOOD PRICES ¶1. (SBU) Summary: In response to high inflation driven in part by food prices which rose 30 to 40 percent in 2008, the UAE Ministry of Economy has implemented price cap agreements with large retailers and signed memoranda with Emirate-level economic entities. As a result of these measures and the impact of the global financial crisis, prices of many food items have declined in 2009. End Summary. ¶2. (SBU) The UAE is a net importer of agricultural and food products given the unfavorable climate conditions for vegetation. In 2008, food prices increased in the range of 30 to 40 percent. Rising food prices fuelled inflation which approached 13 percent in 2008, according to IMF estimates. Inflation, driven largely by high world commodity prices, especially oil, had already risen to a 19-year high of 9.3 percent in 2006 and over 11 percent in 2007, according to the Ministry of Economy. However, global trends were not the sole driver; the government noted that prices of many items exceeded the global average by 25 percent. The trend attracted significant attention from UAE nationals and expatriates, leading to public criticism and questioning the UAE dirham's peg to the US dollar. ¶3. (SBU) Beginning in 2006, the Ministry of Economy (MoE) took a number of steps to curb prices of basic goods, including liberalizing import of 15 food items, passing Federal Law Number 24 on Consumer Protection in August 2006, coordinating with supermarkets to freeze prices of specified food items, establishing an MoE Consumer Protection Department (CPD) to monitor the price of consumer goods, and developing a national strategy to build sustained food reserves. The MoE also signed agreements with local retailers to actually reduce prices of specific food products. CPD's Manager, Dr. Hashim Al Neaimi, told EconLES that the MoE continues to coordinate with major suppliers and with large outlets to review any potential increase in prices of staple goods. Further, MoE has recently promised to reduce the prices of 1,000 items to coincide with Gulf Consumer Protection Day. As a result of these UAEG measures and the global downturn, food prices cooled off in 2009. Dr. Al Neaimi claims the partnership between MoE and major suppliers led to a decrease in prices of basic goods by more than 30 percent. ¶4. (U) Local English-language daily The National tracked movement of food prices during 2008-2009 at the three largest Abu Dhabi supermarkets (Carrefour, LuLu and the Abu Dhabi Cooperative Society). This unscientific poll showed that 2008 prices of 10 items rose by an average 50 percent at LuLu, 31 percent at Abu Dhabi Coop, and 27 percent at Carrefour. However, government efforts are having a positive impact. The LuLu chain agreed to price caps on 35 key items with the MoE, while the Abu Dhabi Coop General Manager told The National that prices of oil and flour had been coming down. ¶5. (SBU) Comment: While consumer concerns about inflation have subsided in 2009, the MoE is continuing its public campaign to keep prices down. Emirati nationals are particularly vocal about inflation, perhaps out of a sense of entitlement in an oil-rich state, or simply because large families have big grocery bills. In addition to the Ministry's efforts, the UAEG offers food staples (e.g., rice) to Emirati citizens at a price much lower than the prevailing price in the market. GREENE