Profits at Agthia surged almost 60 per cent in the second quarter on the falling cost of sales after the Abu Dhabi Government increased subsidies to the food producer.
Net income rose to Dh28.8 million (US$7.84m) in the quarter from Dh18.1m in the same period a year earlier. Agthia's compensation from the emirate amounted to Dh144.24m.
"The purpose of the compensation was to partially reduce the impact of increased and volatile global grain prices on food retail prices for the consumers in the Abu Dhabi emirate," Agthia said in a regulatory filing to the Abu Dhabi bourse yesterday.
An increase in the price of grains triggered by droughts in the United States, the world's largest producer, has raised concerns at the United Nations' food agency.
"We are concerned for two reasons: first the pace at which price rises are taking place; and second because, at least for the time being, there seems to be no relief in prices, in particular for corn, soya beans and wheat," Abdolreza Abbassian, at the UN's Food and Agriculture Organisation, told Reuters.
Agthia is restricted in how much it can pass higher commodity costs on to consumers by a price-control policy in the UAE that keeps the cost of 400 food products capped and relatively low.
"In the near to medium term, if prices stay at the levels where they are today, it could have an impact on the profitability of Agthia," said Ashish Jain, an analyst at NBK Capital in Kuwait.
Agthia is an important player in Abu Dhabi's food security strategy and is 51 per cent owned by the Government through shares held by the conglomerate General Holding.
It is split into three divisions: consumer; agriculture; and an Egyptian business.
The consumer business includes the manufacture and distribution of Al Ain bottled water, frozen vegetable products, Isklar water, Chiquita juices and Yoplait dairy products.
Yoplait claims to be the second-largest brand in terms of sales in the fresh dairy product category worldwide and the biggest in the US and Australia.
To keep up with demand, Agthia recently increased the annual capacity at its flour plants from 205,000 tonnes to 282,000 tonnes and at its animal feed plant from 370,000 tonnes to 488,000 tonnes.
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