Supermarkets weep

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The cost of basic foodstuffs is soaring worldwide and the bad news for Gulf shoppers could be about to get worse as economists warn of further price hikes. Claire Ferris-Lay and Sara Hamdan report on the emerging crisis.

Aziza Rahman is filling her shopping basket with rice. The Egyptian mother of two usually shops in the co-op down the road where it's cheaper because of the price caps that have been put in place by the government. But the shelves are always empty by the time she gets to the shop.

I never used to have to think about how much rice to buy, but now it's a problem," she says.

According to the World Bank, the cost of food has risen by 80% in the last three years. In 2007, dairy products worldwide were up 80%, cooking oils by 50% and grains by 42%.

Food prices are skyrocketing, leading to shortages and even rioting in countries from Egypt to the Philippines. Now the impact is being felt in the Gulf as regional states impose price caps on an increasingly wide range of goods.

Economists are warning that further price increases are likely to emerge this year as retailers that have been forced to cap the cost of some food items, seek to raise the cost of other goods to maintain profit margins.

"It will probably get worse and we will feel it through even higher food prices over the next few months," says John Sfakianakis, group chief economist at Saudi British Bank and a former World Bank analyst.

We are at a historical low point because food stocks have gone down more than at any other time since the 1970s, so it will take a little bit of time for food to be reproduced and meet demand.

Major food retailing groups in the UAE and other Gulf states are capping food items as they seek to rein in near-record inflation. Abu Dhabi-based Bani Yas Cooperative became the latest UAE-based food retailer to introduce caps this week, maintaining a basket of 56 basic food commodities at 2007 prices.

It follows similar moves by other retailers including the Carrefour and Lulu groups.

"Rice, bread, sugar, chicken, paper products - we receive price increases from the supplier for most of our products," says Nabil Kadi, purchasing manager at UAE-based Lifco Supermarkets.

"It's not a matter of a policymaker waking up one morning in the mood to change prices, there are many external factors at play and customers have a right to complain about higher food prices now.

Food commodities are being sold at exorbitant prices when compared to just a few years ago. Wheat is at its highest price since 1980, causing shortages in bread and pasta, and corn has doubled in price since 2006. Two years ago, a metric tonne of white beans would have sold for US$235 but now sells for US$1160.

Stocks of rice, one of the world's most consumed foods, are also being severely affected. The World Bank estimates the cost of rice has risen by 147% in the last year, with global supplies at their lowest since 1976.

"We are stocking as much as we can of products like rice that go quickly, taking into account the expiry dates, but there's not much," says Kadi at Lifco. "We are seeing the shelves emptying with people trying to get certain products before they run out.

Consumers like Aziza Rahman are being hit the hardest. "The consumer is baring the brunt of it," agrees David Berrick, general manager of retail for Abela supermarket in Abu Dhabi. "There isn't a week that goes by when we are not inundated with price increases," he adds.

The World Bank estimates that as many as 100 million people who had previously no need for assistance are now in danger of falling into the category. Aid organisations are struggling to cope with the demand.

In February, the World Food Programme announced it was US$500m short in its budget for food rations because of rising costs.

"It could end up being a disaster in the short-term, especially for the poorest of the poor, in India and Africa," says Milan Sallaba, director and office head at management consultant Oliver Wyman.

Those most affected are being forced onto the streets. In Egypt, 11 people have died in rioting caused by the bread shortages.

In Indonesia, 10,000 demonstrators have hit the streets to protest against rising soya bean costs which have soared 125% in a year, and in Mexico, locals have rioted in response to the cost of corn used to make tortillas.

The head of the International Monetary Fund recently warned that the global food crisis could lead to social unrest so severe that governments could be toppled.

But it is not just consumers who are feeling the pinch in their pockets, commentators are becoming increasingly concerned about the effect the crisis is having on the economy.

"All [of the factors causing the costs] are making food shortages a serious issue that will cost the retail industry more money," says Patricia McCall, a financier who was formerly employed by the World Bank's International Finance Corporation.

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