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Bahrain Food and Drink Report Q2 2008Published by: Business Monitor International Published: May. 12, 2008 - 57 Pages Table of Contents
AbstractBahrain’s food subsidies are once again in the spotlight this quarter, as discussed in BMI’s recentlypublished Bahrain Food & Drink Report for Q208. In February the Bahraini government agreed to extrabread subsidies of BHD3mn (US$7.9mn) in order to keep down the price of this food staple. Under thenew scheme, a 50kg bag of flour will be sold to bakeries for BHD2 instead of the BHD2.7 it would havesold for. This move follows an extraordinary parliamentary meeting in January in which the Prime Minister announced the creation of a BHD40mn fund for social allowances and food subsidies to mitigatethe effects of inflation on lower-income groups.The Bahraini food sector operates on a scheme of massive government subsidies in order to keep the priceof staples low, and ensure a high standard of living for its citizens. However, these subsidies haverecently come under scrutiny as food prices continue to skyrocket. To give just one of many examples, world wheat prices have been soaring due to increasing demand and a squeeze on supplies following aseries of floods and droughts that damaged crops in Australia, Canada and Europe, causing inventories todrop to the lowest level in 60 years. This has had a major knock-on effect, with prices for bread, pasta andmany other foods rising rapidly. The government is now reportedly considering abolishing the existingsystem in favour of a coupon scheme that favours the country's lowest income groups. However, theproposal has met with dissatisfaction among Bahrain's middle-income groups who argue that their needsare being ignored. But in the long term, these subsidies could end up doing more harm than good andwork against the government's efforts to reduce inflation by keeping food affordable and thusconsumption and demand high.. Although figures released by the government claim a fall in inflation in December, price pressures willremain elevated in 2008. We remain sceptical as to the reliability of the government's figures, not leastbecause neither its monthly figures nor a full breakdown of the consumer price index (CPI) are madepublicly available. In November, officials said that food and housing costs were the biggest contributorsto inflation, rising by 9.3% and 7.3% year-on-year (y-o-y) respectively. Although inflation is lower in Bahrain than in some other Gulf States - in the United Arab Emirates (UAE) and Qatar it has reacheddouble digits - it still poses risks to the Kingdom's political stability. Our short-term political risk ratingsfor Bahrain are already dragged down by worker unrest and strikes, with the downward slide expected tocontinue if inflation is not kept under control. This will inevitably have an impact on the businessenvironment and the attractiveness of Bahrain as a place to do business. Get Full Details About This Report >> |
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