Liberalising the UAE's grocery trade

The UAE municipality's decision to scrap agency rights for basic foods including rice, flour and sugar is another nail in the coffin for the agency system, which has restricted the country's grocery sector for more than half a century.

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By  Roger Field Published  September 10, 2006

|~|editor-letter-200.jpg|~|Changes to the agency laws could encourage some supermarkets to make direct imports, allowing them to cut prices of certain products by up to 15%.|~|The UAE Municipality’s announcement that a number of the UAE’s food and drink agencies are finally being abolished is likely to be good news for retailers and consumers. The agencies, which allowed some distributors to act as the sole importer and distributor of certain commodities and branded goods, are thought to have inflated prices of goods by restricting competition. And while the latest development, which saw the Municipality scrap agencies for food items including rice, flour, tea, chicken, sugar, fish products and frozen and canned vegetables, did not cover all foodstuff, it is surely another nail in the coffin of the agency system in the UAE. The UAE Municipality’s decision was also necessary for reasons other than price hikes in the food sector. It signed an agreement with the World Trade Organisation back in 1999 to scrap the agencies by 2006. But while the Municipality’s decision caught headlines in the local press for its potential to lower prices on the supermarket shelves, the effects of changes to the agency laws are likely to be less pronounced, in the short terms at least. It certainly seems that distributors are unfased by changes that could, theoretically, allow other importers or distributors to try to undercut their prices. The reason for this apparent nonchallance is that most distributors, particularly of higher-end food and drink brands, have long standing relationships with their suppliers, who trust them to look after the products properly, and to ensure they reach as wide an audience as possible. The chance of another distributor, possibly unknown to a supplier, being able to negotiate a contract to import or distribute the same product is slim. But not all distributors offer producers and retailers value for money, and if retailers do start to negotiate deals to source products directly from the supplier, it could shave about 15% off the cost of products, and this is a saving that could be passed on to the consumer. This is an idea that could encourage some distributors to work harder in terms of offering producers value-added services such as marketing. One unforeseen side effect of the changes to the rules could be that some distributors start to bring products into the UAE that are close to their sell-by date. These could potentially be sold cheaper than the goods being sold by the original distrutor, but these fears are small compared with the more long-term effects of scrapping the agencies, which will raise the standard of distribution and make the UAE’s FMCG sector more dynamic. ||**||

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