Wheat processors raise capacity utilisation

Bumper wheat crop in the previous two seasons has changed the dynamics for flour mills across the country. About half of the country’s 800 wheat processing mills have raised their production capacity by 15 percentage points to cash in on the upcoming demand in June.

Average capacity utilisation by flour mills has increased between 45 and 50 per cent as against 30-35 per cent a year ago.

“The scenario is totally different this year. Flour mills are restructuring their plants by installing balancing equipment to ensure maximum capacity utilisation. This is unlike last year when the government regulated wheat supply, despite higher output, and threatened fresh investment in the processing sector,” said Gopal Lal Seth Mohata, president of the Maharashtra Roller Flour Mills Association.

“The industry has steadily moved towards better capacity utilisation as adequate wheat is now available for processing, due to the government’s favourable decisions,” he said. Generally, the demand for processed wheat products, including flour (atta), semolina (sooji) and processed flour (maida), takes off with the onset of monsoon, when there is a significant rise in consumption.

Mohata cited two basic reasons for capacity enhancement. First, wheat can be procured abundantly at cheaper rates from spot markets. This is unlike last year, when Food Corporation of India (FCI), the government’s procurement agency, procured more wheat than the buffer norm. As a result, there was an artificial shortage of the commodity and the price increased to Rs 16-18 a kg as against Rs 10 a kg now. Second, there is no threat for government intervention to control supply, which may allow processors to invest on capacity expansion.

India is heading for another record wheat output this year at 82 million tonnes (mt) as against 80.7 mt last year. The record output, along with last year’s carry-over buffer stock, has created storage problem for FCI.

Analysts say FCI will have to go slow on wheat procurement as it holds more than three times than the buffer norm of 5 mt as on April 1, 2010. This meant availability for wheat processors would not be a problem and the price would continue to remain under pressure throughout this season, said Ajay Goyal, managing director of Shivaji Roller Flour Mill.

According to an estimate, nearly 400 operational flour mills across the country consume between 7,00,000 and 8,00,000 tonnes of wheat per month, which leads to accumulation of 7.8-8 mt per annum.

In Maharashtra alone, 40 mills are currently operating with an average 50 per cent of the average capacity, thereby processing 1,00,000 tonnes of the commodity per month.

Mohata said that the processors had stopped procuring wheat from multinational companies as prices were cheaper in the spot market. Most importantly, there is no quantitative restriction.

Alternatively, they lift the cereal directly from the spot market. Earlier, about 10 per cent of the operational mills were procuring wheat from multinational firms at price payable in instalments.