Local bakeries are being hit by price rises of up to 40 percent for imports of dairy goods and packaging from Europe. While the devaluation of the euro has made some European imports cheaper, other baking essentials remain expensive due to global commodity price increases.
Manufacturers and retailers are forced to swallow these increases rather than pass them on to customers such as hotels, supermarket bakeries and the end-consumer — a move that is not sustainable in tough economic times, they told Gulf News. Pro-Bake, a Dubai-based frozen bread and pastry brand, has seen butter and flour prices increase by 30 to 40 percent in Europe, the US and locally, said Jad Charafeddine, managing partner at Advanced Baking Concept, which manufactures the brand.
“The euro has devalued, so the exchange rate to the dirham gives an advantage but because of high commodity prices, it didn’t put a dent on the final cost [of baking ingredients],” he said. The Ministry of Economy will not allow price increases for basic goods, leaving food manufacturers in a fix, he added. “We are losing money, pure and simple. We’ve signed long-term contracts and our clients understand the situation, but we can’t increase prices.”
The ministry allows manufacturers to apply for price increases that are evaluated according to certain conditions. “We didn’t apply because we know it’s a dead-end. Those who got the price increase is because their embassies got involved,” he claimed. Buying flour locally means facing a random price increase from companies with an oligopoly on flour in the region, he added. “We are sourcing heavily from outside, it’s 20 percent cheaper to buy and ship from a European country than to buy locally.”
Bakemart, a Dubai-based pastry manufacturer, saw the price of European-imported dairy and paper packaging products increase by 10 to 20 percent last year, according to operations manager Kochu Narayanan. Their clients are mainly local five-star hotels.
Passing on the price rise
“Importers work within narrow margins so they have offloaded the price increases to bakers and caterers,” he said. “It affected our operations quite badly but we cannot pass the price increase onto customers, so we’re simply absorbing it.” Pricey butter, fats and paper packaging from Belgium, France and the UK have eaten into profits by 10 to 15 percent, he added. “Despite the costs, in the current market we cannot increase the price, we cannot change the recipe, so we work with a narrow margin.” To cut costs, Bakemart is moving its Al Qusais plant to a Dubai freezone in three months, he said.
Federal Foods, the distributor of food products, is now trying to diversify its ingredient sources away from Europe towards Argentina and Uruguay, Akhtar Malek, sales manager for exports and processing, said. It is currently paying 10 to 12 percent more for its flour and baking essence supplies from Belgium and the UK, he added. “It’s a major problem for bakeries.” Federal Foods clients include bakeries at Carre-four, Lulu Hypermarket, Union Co-op and Geant.
Dubai-based industrial bakeries are calling on the government to give them equal opportunities as they face stiff competition from their counterparts in Abu Dhabi, they told Gulf News during Gulfood 2012. Abu Dhabi and neighbouring countries such as Saudi Arabia have government subsidies for flour, reducing their costs by half, they said.