Municipality calls time on agencies

Changes to the UAE's agency laws are likely to lead to a reduction in the price of various foodstuffs.

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By  Roger Field Published  September 10, 2006

The price of some food products in the UAE could fall by up to 15% after the Municipality abolished the agency rights held by companies that import basic foodstuffs including rice, flour, condensed and powdered milk, sugar and tea. The decision, which is in line with the agreements made by the UAE and the World Trade Organisation back in 1999, is likely to be welcomed by retailers and consumers, although those importers and distributors that benefit from the exclusivity offered by the agencies are less likely to be impressed. But any fall in prices is likely to vary significantly depending on the product and category, and it appears that many distributors are unconcerned by changes to the rules, largely because they already have agreements with producers and recognise that it would be too expensive for other companies to start importing the same product. Farid Ahmadi, CEO of NTDE, which distributes products such as Pokka Lemon and Lays Crisps in the UAE, said that any company looking to import products that NTDE works with would struggle. “They cannot compete,” he told Retail News Middle East. “We buy directly from the factory. If they go to buy it, firstly the factory won’t supply them because of their contractual relationship with us and if they go and get in indirectly, usually they end up losing because they have to sell it at cost or below cost price. They also have to list it and rent space on the supermarket shelf for it. It’s a bit headache.” There is also speculation that the new rules will lead to supermarkets importing products directly. But this route is only likely to an option for larger retailers with a dominant position in the market, according to Hubert Lobo, retailer services manager with market research organisation ACNielsen. “If a retail chain cannot take advantage of economies of scale, it does not make business sense to import directly from manufacturers. Moreover, most of the categories which are being considered for immediate action in respect of abolition of agency agreements are short-shelf life products, which is going to be a huge logistical nightmare,” he said. Despite this, Lobo predicts that prices of directly imported goods, mainly commodities, will fall significantly, with retailers potnetially cutting out the distributor’s fees altogether. “The minimum drop will be close to the distributors margins. Prices of directly imported goods may drop by 10-15%,” he said.

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