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Wheat prices: Will customers benefit?

Suresh Krishnamurthy

THE price reduction of wheat under the open market sales scheme applicable for this month and for September can have a dramatic impact on the commodity's prices in the Southern markets.

The open market sales price applicable for the southern States has been revised downwards from Rs. 900 to Rs. 743 per quintal. For the northern market, prices were revised to Rs. 650 per quintal. Prices applicable for Punjab were already ruling at Rs. 75 0.

Prices in the northern market are already below Rs. 650 per quintal. For example, in New Delhi, even the price of wheat flour is ruling at Rs. 595 per 90 kg bag or Rs. 661 per quintal. In contrast, in the southern States, wheat prices have been ruling fi rm ever since the price under the open market sales scheme was jacked up to Rs. 900 in end-March 2000 from Rs. 705 that was fixed for the southern States in December 1999.

The prices in Bangalore are ruling at Rs. 1,150 per quintal now. As such, the revision in price may lead to a downward pressure on wheat prices in the wholesale market in the southern States. It remains to be seen if the prices would be revised upwards a fter September. This would mostly depend on the offtake of wheat from the FCI godowns. If the offtake is not reasonably robust, then upward revisions, if any, are likely to be reasonably moderate.

For consumers of wheat in the South, the reduction in price will lead to a reduction in costs. Anyhow, for the companies in the value-added wheat products industry such as biscuits, breads and noodles, the development ensures that the raw material costs are likely to remain soft. But given the competition for value-added food products, the gains in terms of lower raw material costs may well have to be passed on to customers. The silver lining, however, is that lower prices may help in improved volumes f or the industry. This is likely to be helpful especially for the biscuits industry which has had to bear the brunt of a doubling in excise duty from 8 per cent to 16 per cent.

In the case of branded packaged atta segment, the impact does not appear to be that clear-cut. The earlier price of Rs. 900 per quintal for the APL customers did not deter companies from selling branded atta at prices of Rs. 18 and above. Also, volumes w ere rising at the rate of 40 per cent even at these prices.

However, the revised price of Rs. 650 per quintal has been made applicable for purchases by States to distribute under the public distribution system for above poverty line customers. If the reduction in price leads to a slowdown in growth, companies may opt for reduction in selling price.