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Rising wheat prices may spell end of party for biscuit cos

Ratna Bhushan
Harish Damodaran

New Delhi , Nov. 28

HARDENING wheat prices have resulted in user industries, including big names such as Britannia, HLL, Parle, Priya Gold and Cremica, pressing the panic button.

The estimated Rs 4,300-crore organised biscuit industry, which was particularly on a roll following the halving of excise duty in the 2003-04 Budget and projecting an 8-9 per cent growth for the year, is now singing an altogether different tune. The reason: the spurt in prices of wheat and maida (flour), for which the blame is being laid entirely on Food Corporation of India's doorstep.

Maida, the key raw material for manufacture of biscuits and bread, is currently quoting at around Rs 855 per quintal in Delhi, which is 17 per cent higher than the Rs 730 per quintal level ruling at this time last year. Most of these companies source bulk of their maida from roller flour mills (RFMs). The latter, in turn, procure much of their wheat from the FCI under its Open Market Sale Scheme (OMSS).

According to Mr S.S. Shivrain, President of the Federation of Biscuit Manufacturers of India (FBMI), FCI is now making available wheat under the OMSS in the northern States at Rs 795 per quintal as against last year's corresponding rate of Rs 680 per quintal and this has forced the RFMs to hike their price of maida.

The months beginning from around October up to March is the lean season for wheat, when market arrivals reduce to a trickle and the millers predominantly meet their requirement from FCI. With the new crop to be harvested only from mid-April onwards, wheat prices are set to firm up further in the coming weeks to the detriment of millers and downstream user industries, such as biscuit and bread manufacturers.

"We have represented to the Food Minister, Mr Sharad Yadav, to ensure adequate availability of wheat at reasonable prices to millers through the Food Corporation of India's OMSS. FCI should also be restrained from arbitrarily raising prices," Mr Shivrain told Business Line. During 2001-02 and 2002-03, FCI undertook open sale of wheat to the extent of 5.2 million tonnes (mt) and 5.3 mt each. In the current fiscal, the quantities released through open sale have been a mere 2.2 lakh tonnes during April-September.

FCI officials, on their part, say that the leeway for making large-scale OMSS releases is limited now, given its own depleted wheat stocks. As on October 1, 2003, the wheat stocks in the Central pool amounted to only 18.43 mt, compared to 35.64 mt for the same date last year. It is this huge dip in public stocks and trader's growing perception of FCI's reduced capability for intervention that is driving the current uptrend in wheat prices. Wheat dara on Thursday was selling at Rs 757/759 per quintal in the Delhi market, against 652-655 per quintal on this date last year.

The organised biscuit industry, comprising 2,500-odd units manufacturing around 1.3 million tonnes (60 per cent of total production, including that by 30,000 or more small and tiny bakeries), claims that it is operating barely at 50-60 per cent capacity. This is despite the halving of the excise duty on biscuits from 16 per cent to 8 per cent in the 2003-04 Union Budget.

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