Import-based food markets face hurdles to check prices
By Shakir Husain, Staff Reporter Published: February 14, 2008, 00:45
Dubai: Heavy reliance of Gulf countries on imports for their food needs leaves them with limited options in tackling the food price spike because the inflationary trend is global, analysts point out.
The decline of dollar, rising world population, high international energy prices, increasing food consumption in developing countries due to improving incomes, and diversion of crops like corn and sugarcane in some places to make fuel for cars are among the factors driving food prices higher.
"On one level the issue is structural as the middle class in countries like China and India is growing and that means more consumption of food. The other factor is the dollar's weakness that is making commodities expensive," said Monica Malek, senior economist at investment bank EFG Hermes. Click Here!
She said there is some "bad news" coming out about the euro zone's economy and this could strengthen the dollar in the second half of the year and "on that basis there could be some respite from the rising prices".
Eckart Woertz, an economist at Dubai-based Gulf Research Centre, agreed that the weakness of Gulf currencies has made imports more expensive.
"Food price inflation is a global phenomenon, but [the Gulf Cooperation Council] GCC countries are particularly affected because of their weak, dollar-pegged currencies. If they revalue, food imports will become cheaper.
"This could increase consumption and further add to inflation in case of more luxurious goods but demand for food is rather inelastic, you do not eat more because food is cheap," he said.
Woertz said administrative measures such as subsidies lessen the impact of expensive food on low-income groups but that direct aid to needy segments of the populations would be much more efficient.
With energy prices high, countries like Brazil and the United States are also using corn and sugarcane to make transport fuel.
The use of crops for making biofuels has drawn severe criticism from environmental groups.
"We are witnessing the beginning of one of the great tragedies of history. The United States, in a misguided effort to reduce its oil insecurity by converting grain into fuel for cars, is generating global food insecurity on a scale never seen before," said Lester Brown of US-based Earth Policy Institute.
In low income countries, governments are also faced with the prospects of large-scale social unrest if food prices continue to rise.
To maintain local supplies of cooking oil, India offered tariff concessions to South-East Asian palm oil suppliers.
