No easy way out of Gulf food inflation

Thanks to a number of elements that are causing food prices to rise across the globe, Gulf economies, which import most of their provisions, are expected to continue to experience high levels of food price inflation.

The high food prices are a result of the worldwide shortages of grain in the face of increasing demand. With increasingly more mouths to feed and supply capacities relatively fixed, prices the world over will continue their upward movement.

… Of course, one of the chief reasons grain prices have increased is due to an increase in production costs, most particularly from higher expenditure on energy, which are as much as 40 per cent of total grain production costs. So, what makes the UAE’s export earnings increase is also what causes its imported food to increase apace.

Agricultural goods are shipped primarily on dry bulk ships. The shipping costs have risen 150 per cent over the past 18 months, according to the Baltic Dry index, a measure of bulk dry product shipping costs, also a result of higher bunker fuel costs.

Dry bulk shipping costs are increasing as ship-building costs escalate with competition for steel from the need to build more oil tankers, offshore drilling rigs, refineries and petrochemical plants. This is a classic cost-price squeeze. All commodity prices are increasing. The world is experiencing a secular commodity boom cycle – one expected to last more than 10 years.

Thus, the oil price increases that have filled the national coffers of the UAE and neighbouring oil-exporting states have also led directly to food price increases in UAE markets.

Gulf News