Mills starving despite record wheat output

High prices in domestic market and delay in FCI tenders push mills to the verge of closure

Roller flour mills across the country are facing severe shortage of wheat over the past couple of months, despite a record production of 94 million tonnes (mt) in 2011-12. Millers are burdened with the twin problem of very high prices in the domestic market and delay in tenders from the Food Corporation of India (FCI). Wheat prices are rising and millers are starving of the commodity, despite the fact that FCI is sitting on wheat stocks of 15.2 mt. The total stock in the central pool is around 46 mt.

Wheat prices in the open market are ranging between Rs 1,650 a quintal in north India and Rs 2,000 a quintal in southern states like Karnataka and Tamil Nadu. In most of the northern states, wheat is available at close to Rs 1,700 a quintal. Due to additional freight charges, the price is higher in southern states and close to Rs 2,000 a quintal. Prices in Delhi market were just below Rs 1,200 a quintal two months ago. Sharp increase in prices has led the commodity futures market regulator, the Forward Markets Commission (FMC), to impose a 10 per cent special margin on wheat trading.

Wheat prices started picking up in the domestic market ever since the government allowed exports in November last year. As a result of drought affecting the US, private traders in India resorted to exports. So far about two mt have been exported.

According to industry sources, private traders are fetching Rs 1,750 and above per quintal in the export market (compared to Rs 1,600-1,650 they get in the domestic market) and huge quantities are exported from Kandla port in Gujarat.

The roller flour mills are getting wheat in the tender system by FCI at Rs 1,170-1,185 a quintal. A flour mill can get a maximum of 3,000 tonnes per week under the tender system. Clearly, sufficient quantities are not available.

According to the president of the Roller Flour Millers Association of India, Adi Narayan Gupta, wheat allocation should be made on the basis of capacity and the performance of a mill in the past three years. He added that if wheat exports go unrestricted, prices might inflate further. Millers are forced to come to mandis to cover up their requirements leading to further pressure in open market wheat prices.

The situation in Karnataka is even worse as the millers have not been allotted stock for August. FCI has stopped tenders for Karnataka since the last week of July. Many of the 56 mills active in the state are on the verge of closure as they can neither purchase from the open market by paying a very high price, nor can they buy from FCI as there are no tenders presently.

“There is no wheat in the open market as private traders are preferring to export their stock. As the FCI has not floated any tenders for August, we have no stock presently and we might have to close operations if FCI does not call for tenders immediately,” said M K Gopal Krishna, president, Karnataka Roller Flour Mills Association.

FCI had allotted 230,000 tonnes to Karnataka mills for July-September. However, they got only 130,000 tonnes in July and the balance stock has been held back by FCI. “FCI is waiting for an approval from the government to increase the base price of tenders to Rs 1,285 a quintal. Until they get the approval to raise the base price, they will not float fresh tenders for August and September,” he said.

Millers in Punjab have demanded the government scrap the tender system. There is sufficient wheat in government stocks and it should be released in the open market, they said.

“The government should ban export of wheat by private traders and direct FCI to release wheat to bulk consumers even at the higher price from September onwards,” Krishna said.

Products’ prices up
Meanwhile, as a result of rise in wheat prices, flour mills have also increased the prices of atta, maida and sooji. Prices of maida have gone up by 38 per cent to Rs 23.40 a kg, against Rs 17 a kg in the last month in Karnataka.

Bakers have passed on the burden to the end consumers. The bakers in Karnataka, Maharashtra, Gujarat and Delhi have raised the prices of sandwich bread and multi-grain bread by 10-15 per cent. The prices of these products have gone up from Rs 20 to Rs 35 per loaf of 400 g in these states.