A permanent solution on prices

Ahmed Abdel-Hafez, Tuesday 9 Apr 2024

Can recent initiatives to reduce commodity prices turn from a temporary fix to a permanent solution?

A permanent solution on prices
A permanent solution on prices

 

Shoppers in Egypt were pleasantly surprised this week by noticeable markdowns in the prices of some staples. 

A litre of UHT milk was selling for around LE45 at one of the hypermarkets in Cairo, discounted from almost LE55. Seeing the offer, Nisreen, a Cairo resident, decided to buy a six-pack. 

“It is not every day that we see prices drop,” she said. 

The price slashing is the result of a government initiative to reduce the prices of commodities. In a 25 March cabinet statement, Prime Minister Mustafa Madbouli agreed with manufacturers and traders to start reducing commodity prices by about 15 to 20 per cent, bringing the reductions to 30 per cent after Eid Al-Fitr.

The initiative is the result of a series of meetings between Madbouli and the heads of the Chambers of Commerce and the Federation of Egyptian Industries. 

Dairy manufacturers announced reductions in wholesale prices of 10 to 15 per cent.

Meat prices have also decreased by LE50 to LE100 per kg depending on the governorate, said Mustafa Wahba, head of the Chamber of Butchers. Meat was earlier sold for close to LE500 per kg, but the latest initiatives have allowed for the provision of sales locations free of rent and other costs, contributing to the reductions in prices.

A recent Ministry of Agriculture initiative is also allowing the sale of imported meat, now available in large quantities, for LE300 per kg, Wahba said.

The initiative factors in two critical dynamics: reducing producers’ profit margins and dividing production costs over six months.A member of the board of the General Federation of Chambers of Commerce, who chose to remain anonymous, said the government is aware that producers and importers have been sourcing dollars from the parallel market over recent months, where the dollar exchange rate has hovered around LE70.

However, with the influx of more dollars into the country and the subsequent stabilisation of exchange rates at levels below those of the parallel market, the government has urged manufacturers to redistribute production costs, originally based on an exchange rate of LE70, over six months rather than immediately incorporating them into the prices of goods.

According to the cabinet spokesperson speaking on television, some traders said they would be able to deliver the greater discounts after the Eid because by that time existing stocks of goods that factor in the higher dollar price would have been sold and new stocks, produced at a cheaper dollar price, would be available. 

The initiative also involves the close surveillance of markets. According to the cabinet spokesperson, teams will be dispatched to follow up on the initiative and report any violations. 

Matta Bishai, chair of the Internal Trade Committee’s Importers Division, said in a statement that the main reason for commodity price increases had been the rise in production cost due to the surge in the exchange rate, particularly of goods using foreign components.

Genuine and sustainable price reductions hinged upon stabilising expenses associated with production inputs, he stressed.

The federations and the government are aware that the dollar shortage has resulted in price spikes in the black market, leading some companies to hike their prices by more than 60 per cent, said the member of the General Federation of Chambers of Commerce. 

These products are now being sold on the market, he added.

While initiatives to reduce prices may not bring them down to their levels a year ago, especially since the dollar on the official market has surged from LE30 to LE47, which is bound to impact prices, they will ease recent increases, Bishai said. 

“Exchange-rate stability is the cornerstone for price stability in the markets,” he added.

According to Attia Al-Fayoumi, treasurer of the General Federation of Chambers of Commerce, the initiative offers a prompt, if temporary, solution. The government should focus on guaranteeing a level playing field and upholding the regulatory role of the market, as pledged in its State Ownership Policy Document, he said.

It should also foster fairness in competition, he added, arguing that adherence to these principles will ensure a healthy market environment capable of curbing exploitative practices without excessive intervention.


* A version of this article appears in print in the 4 April, 2024 edition of Al-Ahram Weekly

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