Fresh attempts to cap the price of basic foods at stores across the country will damage profits and could disrupt the UAE's food supply, retailers say.
An electronic system was launched by the Ministry of Economy this week, monitoring the prices of 200 basic food commodities from the moment they enter the UAE to sale at retail stores.
The Electronic System for Goods Monitoring was set up in cooperation with the Cooperative Societies, LuLu Hypermarket, Carrefour, Spinneys and wholesale suppliers so the Government can ensure no party increase prices without approval.
But a number of retailers and economists say the move could squeeze profits and affect food companies doing business in the Emirates as they shun government controls.
"If the global market prices go up then we will ask to increase our prices," said Fazal Valiyaveetil, the purchasing manager at Fathima, a supermarket with 15 outlets in Abu Dhabi. "If [the Ministry of Economy] says no, then we will have to reduce our margin. It is that simple. Someone will have to reduce their margin - the retailers and suppliers will suffer."
The move to electronically monitor prices is the latest effort by the Government to control prices at the tills and stop global food inflation affecting local consumers.
Last May, retailers across the country agreed to fix or lower the prices of 400 basic food items until the end of the year.
The electronic system will keep tabs on the price of rice, wheat, poultry, sugar, milk, tea, meat, eggs, oils, fish and non-food items such as cosmetics.
"I cannot think of an instance where the free market is something that anyone can control. Ultimately unless there's a margin, people will stop trying to do business in that area, and they will go out of the market," said Nicholas Lodge, the managing partner of Clarity, a financial and agriculture consultancy in Abu Dhabi.
"If you bring in controls and measures you end up with something more akin to a socialist state like Cuba or the Soviet Union, where people are queuing up for bread."
Retailers said the controlled market would lead to inflation in other luxury goods as executives looked to make up for the shortfall in profits from basic commodities.
Stores will have to input the cost prices of the 200 goods and their selling price into the system once a week.
Retailers said the new electronic system meant the whole market now shouldered the burden of lower basic commodities and that inputting the prices would take about two to three hours each week.
"There's a sensitivity to living costs and the prices of certain items," said Simon Williams, the chief economist at HSBC Middle East. "This [Government] approach can have some impact in the short term, but you cannot regulate inflation. You cannot wish prices lower."
Fred Watts, a retail food consultant who has worked in the UAE for more than 15 years, mainly as a senior executive for Almaya Supermarket, said the Government's plan was good for consumers because prices would be kept low.
"When you do that, you take away the free market. [The Government] will be faced with other issues as time goes on. When [companies] can no longer run at a loss, what are they going to do?" he said.
The Ministry of Economy said the new system was linked to the UN Food and Agriculture Organisation's price index to compare prices in the UAE with global levels.
The index, which covers cereals, meats, dairy, oils and sugar, was 2 per cent higher in January than December, increasing for the first time since July.