Statement of the Organization’s Interests in the Problem
Food prices are an essential aspect in the life of the consumer, and it is the duty of the government and its organs to ensure that the consumer is protected. The consumer price has been an a thorny issue, and this has been noted by the Consumer Protection Department, which is under the ministry of Economics. The Consumer Protection department was formed in 2006 as a special department under the UAE’s ministry of economics with an aim of protecting the consumers. One main role of the consumer protection department is to oversee the enactment, as well as the execution of policies for consumer protection in conjunction with the appropriate government bodies. The consumer protection department further works in conjunction with other organizations to ensure the consumers are protected (Galadari & Associates, 2014).
In 2006, the UEA enacted the consumer protection policy meant to protect the consumer against various evils perpetrated by greedy traders. Since then, the Consumer Protection department has been following on the progress of this policy to guarantee that it serves the function for which it was enacted for, during its inception (Galadari & Associates, 2014). It is after a careful consideration that I am writing this policy brief to explore all events pertaining to the progress of the policy and, thereafter make informed recommendations regarding the best policy to solve the situation.
A number of organizations have focused their efforts on the consumer protection policy amid rising prices of food in the UAE. One such organization if the Emirates Society for Consumer Protection, which is also investigating the policy to recommend any amendment that could solve the rising food prices. Since the consumer protection department is tasked with the responsibility of protecting the consumer from cases such as the rise in prices, there is a need for this unit to lead the way in policy evaluation and recommendation of the best policy to be adopted (Geographical Magazine, 2008). This policy brief is thus important and will serve this function.
Definition of the Problem
The UAE is among the countries vulnerable to price hikes because of its climatic conditions. Situated in the Middle East, the UAE experiences desert-like conditions, which do not allow the country to engage in agriculture to take care of food security. During summer, temperatures rich a high of 40oC making it hard for growth of crops. The UAE, therefore, has a low food sufficient rate and relies on imports from other countries. About Dh45 billion is spent annually on food imports. However, traders have taken advantage of the situation and are thus hiking prices despite the fact that the country has a policy to protect consumers from such cases (Arnold, 2014).
According to Quintana (2014), there has been a steady surge in food import in the UAE. For instance, in 2009, food imports increased by 31.5% from the previous year. The increase was associated with high prices and an increase in population. During the same period, the prices of vegetables grew by 15% from the previous year, whereas the prices of fruits grew by 12%. Prices of other farm produce also grew in different margins with fish as the only agricultural produce whose price was reduced slightly. The increasing food prices have seen an increase in inflation by an average 11% annually, and this is a sign that the public is likely to suffer more. This means that the problem could be either on the implementation on the policy itself. One needs to evaluate the economic conditions in relation to the existing policy in order to propose a solution. It should be noted that a national issues can be solved through appropriate policy and thus this policy brief essential for the UAE in tackling the rising food prices crises.
An essential step must be taken to solve the situation because food prices affect other activities in the country. Already the inflation rate is rising at a steady rate. In 2009, it rose by 6%; in 2011, it rose by 11%, whereas in 3014, the inflation rate is likely rise by 17.6% (Emirates News, 2014). The number one sector likely to be affected is the hospitality industry, which has been on the rise in the UAE. Many tourists are likely to shun the hospitality industry in the UAE and this is likely to result in unemployment. Also, there is a serious threat to the sustainability efforts for the future generation. This is because any increase in population must be accompanied by an increase in food production to sustain the additional population. Excessive reliance on imports is also likely to affect the exchange rates, whereby it will weaken the UAE currency against other international currencies. This is likely to affect other trade in the country, thereby affecting the activities of other international bodies in the UAE. It should further be noted that the main people affected by the high food prices are the children, youth, and women because most of them have low or no income. In this case, the vulnerable groups in the society will be affected (Kamel, 2012).
Description and Critique of Pre-Existing Policies and Programs
The current policy put in place to tackle food policy is under the federal law number 24 of 2006 enacted under the consumer protection programs. The policy vested its responsibilities in the consumer protection department. The consumer department works hand-in-hand with other government authorities to ensure various issues affecting consumers are handled effectively. The consumer department is also tasked with the responsibilities of controlling the price movements, whereby it tries to limit its increase. The department has further been empowered to act on consumers’ complaints based on the prevailing situations. Various studies have been carried out by this department on various economic trends and price movements as part of carrying out the policy mandate (Salama, 2011).
In summary, the consumer policy in the UAE has a number of objectives, including monitoring the movement of prices, ensuring honest competition, curbing increase in prices, and fighting monopoly. In 2012, online price monitoring system was launched to ensure effective monitoring of prices by consumers. Through this system, consumers can report any cases of price increase by greedy traders.
The online pricing system introduced in 2012 has paved way for the government to introduce price caps. In this case, the government has specified the highest prices to be charged by traders, and this has provided a cue to consumers. According to Quintana (2014), consumers in UAE welcomed the idea of price caps as provided by the consumer protection department. Based on the price cap strategy, it can be claimed that the consumer protection department has taken a considerable step in protecting the welfare of the consumers.
Although the consumer protection policy has been lauded for its effectiveness in curbing consumer prices, it is a blunt economic tool one can use to sustain the economy. The policy benefits all people in the economy, whereby it treats the entire population on the same social scale. This policy fails to address specific issues in the UAE. Although people have complained about high prices, not all of them are on the same social class (Quintana, 2014). Some enjoy prestigious status and thus will not mind high prices, whereas others prefer reduced prices. In this case, this policy will make the UAE society to lack class.
Also, the price caps policy is likely to be a burden to the traders and finally push them out of the market. The UAE does not have enough capacity to produce agricultural products, and thus it has to rely on imports (Quintana, 2014). In this case, any fluctuation in the global food prices is likely to affect the selling price of products. The retailers’ margin is affected by the price caps and this means some may end up making losses. According to Arnold (2014), retailers have been struggling with price caps since it was introduced. A number of them have hoarded some commodities, thereby creating an artificial shortage in food supply on the market. Arnold (2014) claims that hoarding may not continue for long, but instead, some retailers will be pushed out of the market. Arnold (2014) cites some remote areas in the UAE, which he claims will not have sufficient supply of food, even if prices will be manageable to them. This means that the current policy will only solve short-term issue, but later create long-term problems.
Price caps are a short-term strategy employed to curb a temporary issue. When left to prolong, the high cost eats into the fixed profit margins thereby pushing the business to a point whereby it cannot manage its cost. As a result, such a business exits the market. In the UAE, most food industries are SMEs. As a result, they cannot grow under a situation of fixed prices. Madore (2012) describes the current trend in the food market in the UAE for traders as “in and out” situation. In this case, traders enter the market easily, and are forced to exit after some time.
Price caps, although favorable to consumers, requires strict supervision for it to benefit the target consumers. For the case of the UAE, the supervision has not been effective and this highlights some of the flaws in this policy. According to the Emirates News (2014), consumers are still complaining of high prices even after price caps was introduced in 2012. This means some traders still charge high prices and the UAE government have not managed to control the situation fully.
There are various policy options the UAE government can enact to solve the current situation, and this section highlights three.
Providing Flexible Pricing
The UAE can change the existing policy by shifting to flexible pricing rather than price caps. Using this policy, the government should allow traders to charge prices based on the market conditions. However, this ought to be carried out under strict supervision to prevent chances of overpricing.
When analyzed in terms of its economics, this policy gives traders a chance to save their business because it guarantees them some profits. In addition, it ensures that those attached to the food industry continues to operate. When analyzed in terms of equity, the policy does not burden the UAE government, but rather ensures the government attains its revenue. Technically, the policy is not technical because flexible pricing will mean the prices are determined by the market conditions. However, the policy will require strict administrations to ensure that consumers are not exploited. At the same time, it will require to brave some political fight because reverting from price caps to flexible pricing will be interpreted as a political failure.
Advantages of Flexible Pricing Policy
Pricing of food is flexible under flexible pricing. In this case, different classes of consumers will be catered for under this policy. At the same time, SMEs will manage to stay on the market and this will assure them some profits.
Flexibility is likely to open avenues for exploitations. In this case, greedy traders are likely to charge high prices because there will be no restrictions. However, this can be countered by strict supervision.
Subsidizing Food Prices and Encouraging Competition on the Food Market
Instead of imposing price caps only, the UAE can opt to provide subsidies while controlling price caps. In addition, the government can revise its policy to encourage competition on the local market. This means the UAE government can focus on some raft of measures, such as reducing VAT, waiving off some import tax, harmonizing licensing process for food imports, and encouraging the formation of local cartels to deal in the food market. Such policy will require the UAE to have a comprehensive plan in place to foresee the implantation of the policy.
In the first place, the UAE will be forced to review its licensing procedures for importers. The current situation favors local traders than foreigners. However, with this policy in place, the UAE should review its trade procedures and make it easy for foreign players to compete on the food market. Also, encouraging food importation through cartels will ensure that the importers reap on the economies of large-scale operations. This will translate to low prices, which can be controlled under the existing price caps policy.
When analyzed economically, many players will join the market and this means job creation and food security. Administratively, the policy will require strict supervision, even though it is not technical. However, the government will be forced to inject a lot of capital in the execution of this policy, and this is likely to attract some political opposition. Nevertheless, the UAE has a vast wealth of oil resources and thus it will finance the program.
This policy will help revolutionize the food market in the UAE. More players will enter the market, and there will be a healthy competition. At the same time, the current policy will not be abolished, but rather strengthened. Although competition will be based on price and other factors, the government will set a maximum price to be charged.
There is no certainty that market prices will be kept low, and thus the government is likely to incur some loss of revenue. Also, there will be no local initiative to curb the food shortages permanently.
Creating a Situation to Encourage Medium and Long-Term Food Supply Response
Although high food prices present a negative situation to the UAE, the country can use the situation as a strategy to provide long-term and permanent solution. According to YU (2011), a crisis makes all organs in the system to think of a way out, and this theory can work on the market situation. However, the government should come up with measures on how responses from various arms of the government should work. In this case, the government through various organs should trigger local investment in agriculture. The UAE has almost similar climatic conditions, such as those in countries, such as Israel, which have focused their technological savvy in agriculture. This means investments in greenhouses and irrigations, as well as investing in agriculture in developing countries with good climatic conditions, should be the focus of the UAE, in this policy (Quintana, 2014). The government’s role in this policy should be to provide capacity in terms of training and policy framework to allow investments.
When evaluated in terms of economics involved, this policy, if well implemented, promises a revolution in the economy of the UAE. In the first place, investment into the local agribusiness will result in the creation of jobs. Tertiary industries, such as those selling fertilizer and greenhouse infrastructures will be revolutionized. However, it will take time for the investments to break even. Technically, the policy is not complicated. It has succeeded in various countries, such as Brazil and Malaysia, and thus it will be easy to carry out. However, it requires strict administration, of lobbying and providing technical support (Jones, 2006).
This policy will provide a permanent solution to the food crisis in the UAE if followed closely.
The return in this policy is not immediate and thus cannot solve the current situation. Also, the returns are not certain because one cannot predict the outcome of this policy.
Based on the analysis of the three policies, this paper recommends that the UAE to implement the third policy, but with some modifications to solve short-term issues. In this case, the UAE should come up with a comprehensive framework for creating a situation to encourage medium and long-term food supply response. One modification in this policy is to provide a means for responding to the short-term crisis after the long-term measure is in place. One short-term response in this case would be to offer aid to those unable to afford the high cost of food.
This policy is the best because it provides a permanent solution to the food crisis. However, it cannot be handled by the UAE consumer department alone. Instead, it requires all the arms of the government to work hand-in-hand with the private sector to ensure success. Although this can be a point of politics, the economic value derived from the strategy and the need to take action fast to avert the rising cost of the food crisis will steer everyone into action.
When compared in terms of the cost, this policy will be expensive to implement. However, since the policy promises returns in investments in agriculture, many players will be willing to invest into it.
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