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Food processing companies brace for wheat shortage

The country is expected to face a shortfall of the cereal in the months ahead as produce in the rabi season is expected to be below estimates, while globally, too, there is a supply crunch on account of Russia-Ukraine war.

April 26, 2022 / 12:34 PM IST
Just-harvested wheat bales on a field in Khirongi village of Mainpuri district in Uttar Pradesh (Photo: Soumya Sarkar)

Just-harvested wheat bales on a field in Khirongi village of Mainpuri district in Uttar Pradesh (Photo: Soumya Sarkar)

Food processing companies such as iD Fresh Food, Mrs Bector's Food Specialities and CG Corp Global are getting ready to combat a possible shortage of wheat due to the combined effects of hoarding by farmers and traders, and the fallout of the Ukraine-Russia war. Furthermore, industry stakeholders indicate that the supply of the produce may further suffer in the months ahead due to yield loses in states like Punjab and Haryana, the top producers of the grain in the country. Hence, these companies are prepared to increase wheat inventory and are also considering a hike in the price of products as wheat rates go up.

“Our vendors are finding it difficult to source wheat and the situation is expected to worsen going ahead if the government does not intervene,” said Sandip Balakrishnan, head, procurement, India and GCC (Gulf Cooperation Council, a grouping of Persian Gulf nations) at iD Fresh Food.

(Read: Wheat inflation becoming hard to stomach for Indian households)

iD Fresh Food, a player in the ready-to-cook segment known for its idli-dosa batter, also sells wheat-based ‘parottas and paranthas’, which account for 40 percent of its turnover.

Mrs Bector’s Food Specialities, which houses biscuits and cookies under its brand Cremica and bread under English Oven and also manufactures these products for several food processing companies, also flagged unpredictability in wheat supplies and prices.

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“The prices are very volatile at the moment and the normal quality wheat price is 5 percent higher than the government support (price),” said Anoop Bector, MD, Mrs Bector's Food Specialities.

“We also do not have clarity on how will mills source wheat in the months ahead after they exhaust their current stock. There are also reports that farmers are hoarding wheat supplies anticipating a surge in prices,” added Bector.

“Wheat prices, if you see for the last five years, have almost been flat,” said Balakrishnan of iD Fresh Food. “But (they) shot up by 10 percent in the last two-three months, he added.

Beer companies, too, will be hit in a wheat shortage scenario. Craft beer maker Bira 91 is securing adequate supplies of wheat and other commodities in preparation for such a scenario, indicated its founder and CEO Ankur Jain.

Stocking up

“Consistency in wheat quality is important for us and, hence, we have stocks of the grain but given the situation we are evaluating if we need to stock the supplies for a longer timeframe,” said Bector.

Companies also indicated that they might hike the price of their products given the stress on margins.

“We are watchful of the situation and passing on the costs to consumers partially instead of hiking the price in one go,” said Rahul Gandhi, chief marketing officer, iD Fresh Food.

Food companies are also counting on government intervention such as export and price controls and believe the shortage situation is a passing phase.

“This shortage is a temporary phenomenon. Private players have purchased wheat at a mark-up price higher than MSP (minimum support price) in the recent past but we trust the government to look into this problem as it is a matter of food security. Wheat-based product manufacturers and wheat suppliers are confident that the price of wheat will normalise soon,” said Varun Chaudhary, managing director, CG Corp Global, the maker of Wai Wai ready-to-eat noodles.

Production hit

While earlier projections had shown that India can cash in on the global shortage of wheat due to the Russia-Ukraine war, economists say a less-than-estimated output of the grain can lead to shortage of the product in the country too.

“India’s wheat production has been hit due to the weather conditions, extreme heat and some fertiliser issues and while we were trying to take advantage of the shortage of the foodgrain globally; now we will also be hit,” said Rajani Sinha, chief economist, CARE Ratings.

According to Sinha, though the country may not face acute shortage of the grain given reserves with the government, the prices of the product might climb substantially.

The agriculture ministry has predicted wheat production of over 111 million tonnes this year compared to 104 million tonnes last year. Economists, however, expect production to be low given the harvest losses in Punjab and Haryana. A global wheat crisis due in Russia and Ukraine, which account for about a third of the world’s wheat production, has worsened the situation.

Fast-moving consumer goods or FMCG companies operating in consumer staples and food processing companies are battling inflation on several fronts already and a shortage of wheat or a rise in its prices will multiply their challenges, indicated Sinha of CARE.

“The margins of these companies are already under stress and the demand scenario, especially in the rural areas, does not support passing on the cost increase to consumers,” she said.

ITC through Aashirvaad, Adani Wilmar’s Fortune, Cargill India’ Nature Fresh Sampoorna Atta and Patanjali are some of the brands operating in the staples segment. Players such as Britannia and Nestle, too, require wheat for their offerings in biscuits, breads, pastas and noodles categories. In its annual report for 2021 in March Nestle had said it expects input prices to remain elevated.

“After some level of stabilization towards the end of CY21, key inputs are witnessing another bout of inflation. Concerns are particularly high for palm oil and crude oil prices, which are up 40-50 percent in the last three months on top of a 30-40 percent jump in CY21,” said a report by Jefferies.

“The Russia-Ukraine crisis has also been pushing up prices of wheat and edible oils, and this may have ripple effects in India, although the extent may be lower given the inward nature of the market,” it added.



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