Wheat prices decline on record output, procurement and demand destruction

The price decline has brought major relief to middle-class consumers at a time when Covid-19 has rendered millions of people jobless and millions of others underwent pay cuts

Wheat, flour and maida prices declined by 10 per cent in May after a marginal increase in April, because of record harvest, surge in distribution through the public distribution system (PDS), and destruction of demand because of the lockdown.

The data compiled by the Ministry of Consumer Affairs, Food and Public Distribution showed modal wheat prices declined by 12 per cent between March and May. It is trading currently at Rs 22 a kg, as against Rs 35 a kg in March. Similarly, flour (atta) became cheaper by 6.7 per cent during the period from Rs 30 a kg in March to Rs 28 a kg now. The prices of both wheat and atta had risen marginally because of lean season demand in the pre-lockdown period.

The price decline has come as a relief for middle-class consumers at a time when the Covid-19 pandemic has rendered millions jobless, while salaries of others have been cut because of the lockdown, which resulted in closure of factories, wholesale and retail stores. 

“Atta prices marginally jumped in March due to lean season demand. But, record rabi wheat harvest and increased distribution for free or at discounted prices through PDS pulled down prices by around 10 per cent from their March peak,” said Sanjay Puri, president of the Roller Flour Mills Federation, which represents around 4,000 processors across the country.

Wheat prices in Delhi declined by 4.2 per cent and traded at Rs 23 a kg in May, as against Rs 24 a kg in March and April, according to data. Similarly, flour prices fell by 3.6 per cent to trade at Rs 27 a kg, from Rs 28 a kg in March. However, Mumbai has bucked the national trend and wheat and flour prices jumped by 9.4 per cent and 5.9 per cent to trade at Rs 35 a kg and Rs 36 a kg, respectively.

 

 

Roller flour mills have also seen a sharp decline in their ex-factory flour prices at Rs 22.75 a kg, from Rs 24.50-25 a kg in March and April. Meanwhile, maida prices have declined sharply because of demand destruction following closure of major consumers like bakeries, biscuit makers and street vendors, who account for 20-30 per cent of overall consumption. Mills are selling maida at Rs 22.60 a kg in north India.

“Owing to weak demand, flour millers have reduced operating capacity to 25-30 per cent. Institutional demand, which contributes significantly to overall flour and maida consumption, has been completely destroyed. While large corporate houses like ITC, Adani and Cargill are operating, medium and small sized enterprises are struggling to operate due to shortage of labour or packaging materials. As and when demand resumes, flour millers would increase their operating capacity,” said Ajay Goyal, Shivaji Roller Flour Mills.

D Manikchand, managing director of Panchaganga Roller Flour Mills, a Belagavi (Karnataka) based flour miller, believes the lower capacity utilisation might create shortage of flour, maida and other wheat derivatives. 

Meanwhile, the government has allocated large quantities of wheat for free or at subsidised rates of Rs 2 and Rs 3 for rice and wheat, respectively, to migrant workers and ration card holders across the country.

“A majority of such wheat and rice is coming back to system, which reduced demand for flour from roller flour mills. Instead of distributing it free, the government should reduce OMSS (open market sale system) price of wheat by Rs 5 a kg, which would make it cheap for consumers. Through this, roller flour mills would also survive. This will be a win-win situation for all stakeholders,” said Puri.

To boost PDS supply, the Food Corporation of India (FCI) has procured 35.1 million tonnes (mt) this rabi season out of an estimated 106 mt of India’s record wheat output. 

With this, total wheat stock in FCI’s central pool stands at 47.94 mt and rice inventory at 27.23 mt.