Coronavirus and the food industry: The UAE’s law to regulate the strategic stock of food commodities – what does it mean for food retailers?

Middle East, UAE

Correct as of 9am, 6th April. This article is not being maintained.

While the food and agricultural sector should in principle be less affected by the Covid-19 pandemic than others, labour shortages, transport and human movement interruptions, quarantine measures limiting access to markets and supply chain disruptions could affect supply.

As governments impose lockdowns in countries across the world, recruiting seasonal workers has become a major problem for farmers. For example, according to reports, the German Farmers’ Association has said that “coronavirus and the measures taken across Europe will have a direct impact on food production. In the immediate term, the fruit and vegetable farms that rely on seasonal workers abroad are particularly affected”. In Turkey, one of the main exporters of food to the Middle East, coronavirus arrived at the worst time - the season for sowing vegetables, and soon it will be the time to sow cotton, pulses and other crops. In some parts of Asia, vegetable and fruit farmers are struggling to package and transport their produce and they face a logistical nightmare caused by a nationwide coronavirus lockdown. A similar situation is taking place in Australia, another main food exporter to the Middle East, where Australian farmers are worrying about who will harvest crops amid a ban introduced by Australian government on foreigners entering the country.

Elsewhere, agro-traders are pondering how long supermarkets will stay fully stocked as long-time supplier nations begin imposing export controls. Kazakhstan, for instance, has reportedly banned exports of wheat flour, of which it is one of the world’s biggest sources, as well as restrictions on buckwheat and vegetables including onions, carrots and potatoes. Vietnam, the world’s third biggest rice exporter, has (reportedly temporarily) suspended rice export contracts. Russia, the world’s biggest wheat exporter, may also threaten to restrict exports, as it has done before. The consequences of such actions are far-reaching and life-threatening.

Countries such as the GCC countries with high level of imports are particularly vulnerable to food price rises and shortage unless the government takes action. The UAE, for instance, has introduced a strategic food security law (Federal Law No. 3 of 2020) aiming to ensure “adequate and uninterrupted food supplies through wholesalers and retailers across the UAE at all times”.

The law also seeks to regulate the strategic stock of food commodities in the country in the event of crises, emergencies and disasters and offers incentives and facilities to registered providers and merchants while stipulating various penalties that include imprisonment and fines of up to Dh5 million for violators. As per the law, registered merchants are required to manage the strategic stock of food commodities and the warehouse by specifying the location, area and size of the store designated for the food commodities provided that it is in the country, and to notify the competent authority of the location of the store, as well as storing the stock of food commodities under the specifications and standards adopted in the UAE.

What does the law mean for food retailers?

If you are a food retailer, in order to comply with your legal obligations, you must have a proper (and up to date) crisis management plan in place and make sure you implement it fully. Some of the key questions you need to ask:

  • Does your plan sufficiently protect vulnerable employees? (See CMS’s client update on “Coronavirus: Employer measures and policies”.
  • What are your stock levels? Do you have stock level and demand auditing monitoring systems in place to enable you to replenish stock levels for food and groceries as quickly as possible in order to meet your legal obligations?
  • Does the plan expressly identify the key personnel (and their authorised delegates) and their relevant functions? Are the key personnel (and their authorised delegates) able to lawfully operate in case of emergencies including during the lockdown periods?
  • What are your notification obligations in the event you become aware that you are (or are likely to become) unable to manage the required stock levels?
  • Do you have alternative supply, production and/or storage facilities available? What are the supply terms and conditions? Are the terms consistent with your statutory and other contractual obligations?
  • What is your position vis-à-vis your suppliers and distributors? Are any of your main suppliers in countries severely affected by the pandemic (e.g. China, Italy, Iran) or the lockdowns and human movement restrictions (e.g. Australia) or where protectionist export restriction measures have been introduced (e.g. Vietnam and Kazakhstan)? How strong is your position in relation to any potential non-performance by suppliers or subcontractors?
  • Have you conducted a full review of your contracts particularly the force majeure and insurance provisions? Are you sufficiently protected against business interruption caused by issues such as supply disruption, failure of utility services caused by a pandemic?

Conclusion:

The new UAE law on food security places an extra layer of obligation on food retailers to be prepared and take a proactive measure to respond and manage the implications of the coronavirus pandemic on the food and agribusiness. Food retailers must consider their statutory and contractual obligations carefully given the constant changes in light of the rapid movements in the global supply chain. A comprehensive and up to date crisis plan would be essential to ensure the continuity of supply.