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Pressure of Commodity Prices and Future Perspectives

According to the United Nations (2008), global food prices have risen by forty percent in the past nine months and food reserves are at the lowest for thirty years. Poor harvests coupled with high population growth, rising energy and grain prices, the effects of climate change and a shift toward bio fuel crops are all cited as contributing to this trend. The impact has been felt globally with food riots breaking out in Morocco, Yemen, Mexico, Guinea, Mauritania, Senegal and Uzbekistan. For the first time in two decades Pakistan has reintroduced rationing. Russia has frozen the price of milk, bread, eggs and cooking oil for six months. Indonesia has increased public food subsidies and India has banned the export of rice except the high-quality basmati variety. The UAE’s semi-arid climatic conditions, poor soil quality and diminishing water supplies make growing food domestically expensive. As a result, the UAE is a net importer of foods; importing the majority of its food. In 2006, agriculture constituted of only two percent of GDP. Between 2002 and 2006 the US Dollar has depreciated by an average of 1.5% per annum with the Japanese Yen, 6.4% with the Euro, 4.8% with the British Pound, 1.7% with the Indian Rupee, 1.2% with the Chinese Yuan and 7.7% with the Australian Dollar (UAE Central Bank). The sharp increase in food prices coupled with the weakening of the UAE Dirham against the currencies of major sources of food imports has put additional pressure on domestic inflation. According to the Ministry of Economy, in 2006 the national headline inflation rate was 9.3%, with inflation for food being lower at 5.1%. The rise in prices in Dubai can therefore be attributed in part to the global trend in rising food prices which is then exacerbated by the depreciation of the UAE Dirham. In an attempt to alleviate some of the pressures, the UAE’s Ministry of Economy has formed alliance with the Union Cooperative Society to freeze the prices of 16 food items at their 2007 levels. Following this, other large supermarket chains have also announced the implementation of similar programmes.

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