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Price deals could cost retailers dear

Abu Dhabi: Major retail chains that have committed themselves to fixing the prices of basic commodities at the 2007 level are bound to incur losses, a major retailer said on Sunday.

The Ministry of Economy was able to sign a series of price-fixing agreements, for 52 basic commodities with Carrefour , 32 with LuLu Hypermarket , 16 with Al Etihad Cooperative Society and 56 with Bani Yas Cooperative Society.

Nevertheless, Abu Dhabi Cooperative Society , which committed itself to sell around 200 commodities at cost-price, disagrees with the logic of fixing the prices, arguing that the measure will not be effective in curbing inflation in the longer term.

"Selling cheaper than the price of purchase will take us nowhere, and is non-sense, and accordingly all the items that we agreed to sell at lower costs are on our shelves, in contrast to other retailers who have stopped selling the items altogether," Georges M.J. Mojica, general manager of Abu Dhabi Cooperative Society , told Gulf News.

The ministry announced yesterday that it will continue to seek new agreements committing other retailers to fix prices of basic items at the 2007 level.

"Food, though increasing in price, is not the major factor behind high inflation, but rather the rents. Hence, if the government wishes that retailers commit to fix the prices to the 2007 level, it must convince landlords of the same," Mojica said.

Meanwhile, the ministry said in a statement that it is monitoring the prices of the agreed items through its consumer protection department and emphasised the commitment of all retailers who have signed the price-fixing agreements.

"Disciplinary measures will be taken against those retailers who do not respect these agreements, while the commitment of cooperative societies reflects social responsibility and the important role of these societies in balancing the prices," Mohammad Ahmed Abdul Aziz Al Shehhi, the undersecretary at the Ministry of Economy , said in a statement on Sunday.

"We are a private business, and we do not subsidise our operations. If the government wishes to subsidise basic items, it is welcome. But for us, we are operating in a competitive environment and have to face international retailers who have other places of business, while we only have Abu Dhabi," Mojica said referring to the need for expansion and opening of new outlets, which are totally financed by the cooperative society and not the government.

The ministry is also seeking to establish a single supplier to provide for cheaper importation prices, through the Cooperative Union. In reality, most retailers import many items directly from overseas, with many providing the consumer with a cheaper option selling some items with the retailer's brand.

"Usually, the consumer has five to six different options for any item, and our brands sell at a much cheaper price as we do import many items directly such as rice and pasta, while setting a single importer will not influence prices that much, as the UAE is a relatively small country in terms of population, and accordingly has no ability to influence international prices," Mojica said.

"We compare our prices to countries like Qatar and Saudi Arabia, and we find no difference, as the rising food prices is a global phenomenon, so no one is taking advantage of the situation here," he said.

Inflation was singled out by MoE as the biggest challenge in 2009. Though food prices have been surging, the most damaging influence comes from rents, energy, government fees, as well as imported inflation, according to Mojica.

By Ahmed A. Elewa

© Gulf News 2008