The Gulf's appetite for high quality food has shrunk over the past year and companies are adapting by offering lower quality food at cheaper prices, food producers and distributors said.

The economic crisis has cut consumers' disposable incomes and reduced spending on premium food products in the Gulf region, Shonil Chande, a food and drink analyst at Business Monitor International, said on the sidelines of an industry conference in Dubai.

'This is not the time for any company to be launching premium food products in the market because there is no longer a strong demand in the Gulf like before,' he said.

Poor crop output last year caused the price of basic food items such as rice and sugar to rise globally, prompting cash-strapped consumers in the Gulf to tighten their belts even more.

'Its no longer about offering consumers fancy packaging and very high quality goods, its about offering them a good product and at the lowest price possible,' said Farhad Fathipour, sales and marketing director at Khatereh General Trading, a Dubai based rice trading company.

'Our product does not have the same high quality packaging as others in the market and we cut down on advertising, all to provide consumers with the lowest price possible.'     Khatereh trades around 100,000 tonnes of Indian basmati rice per year in the Gulf and Middle East region, Fathipour said.

'The Middle East has become a very price sensitive market and we had to adapt to that change,' he said.

2010 price hikes

Higher ingredient costs have hit the margins of some  manufacturers in the region, such as Saudi food firm Halwani Brothers.

'Over the past year we had been forced to compromise our profit margins on products containing sugar, such as jams, because of the high sugar price,' said Mahmoud Abu Asabeh, regional sales manager at Halwani. 'There comes a point where you just have to raise the price and maybe this will happen in 2010.'

Raw sugar futures more than doubled in 2009 and have touched a series of 29-year highs this year, propelled by a huge Indian appetite for the sweetener and poor crop yields in top exporter Brazil after heavy rains disrupted harvesting.

Halwani trades mainly in Saudi Arabia and Egypt. Its products include Middle Eastern sweets, processed meat, jams and dairy products.

Still, not all companies have taken the approach of aiming at the budget-conscious consumer.

US-based Kraft Foods has no plan to cut the output of the high quality products in its range and may increase  prices to maintain the quality, said Vikram Mohan, Middle East  business development manager for Kraft.

'We believe that there will always be a demand for high quality products even is the price is higher, because some people have acquired a taste for these products and will always buy them,' Mohan said. 'Its like an addiction.' – Reuters