Friday, November 30, 2012


Any industry will always try to maximize its profits through many honest way and it is to be admitted that input material invariably forms a sizable component in the end product price. This is no exception to flour milling industry also which uses wheat as its raw material. Unlike Chakkis, modern Roller Flour Mills process the wheat into consumer products like Suji and Maida while Bran and Germ are by products. With slow disappearance of Chakkis in many parts of the country, big flour mills have entered into the Atta market with their own brands and to day branded Atta costs any where from Rs 35-40 per kg while the raw wheat sells at Rs 18-20 per kg. Naturally the industry can be expected to have comfortable margins in the manufacture of Atta, Maida and Suji. However the stand being taken by the flour milling industry that they are all incurring heavy losses is some what puzzling. Recent GOI modification of wheat pricing with uniform prices across the country seems to have gladdened the hearts of the millers probably because their profitability is bound to go up under the new policy. Here is a take on this issue.

"Roller flour mills in the northern region are gearing up to step up capacity utilisation after the Central government revisited its decision on the price of wheat under the open market sales scheme to provide a level playing field to flour mills across India. Flour mills in the north — particularly in the states of Punjab, Haryana, Uttar Pradesh and Madhya Pradesh — had been keeping their capacities idle, as wheat in the producing states was available to them at a higher price than in the consuming states, making business unviable. Under the latest guidelines, wheat prices (per quintal) in the producing states have been fixed at Rs 1,403 in Uttar Pradesh, Rs 1,417 in Madhya Pradesh, Rs 1,446 in Haryana and Rs 1,484 in Punjab. In the consuming states, the price of wheat will now be the price in the state from where it is imported, plus freight charges. Earlier, freight charges and state taxes in the consuming states were subsidised, making wheat dearer in the producing states. The president of the Madhya Pradesh Roller Flour Millers Association, Sunil Aggarwal, said, "About 50 per cent of India's flour mills are located in the producing states, as it makes business sense. The state has close to 50 flour mills with an installed capacity of 200 tonnes per mill per month. All of them were running at 30-40 per cent capacity. This will now increase substantially." Adi Narayan Gupta of the Roller Flour Millers Association of Uttar Pradesh said wheat is available in Delhi at Rs 1,328 per quintal and in Uttar Pradesh at Rs 1,403. The state has over 140 flour mills and all are battling for survival. The new price has created a favourable climate for mills in Uttar Pradesh, which can now sell in Delhi. Taxes are the highest in Punjab and Haryana. These taxes come in the form of VAT (value-added tax), mandi fee, arhtiya commission, labour charges, handling charges and rural development fund. The taxes are close to 15.5 per cent in Punjab and 13.5 per cent in Haryana. In Uttar Pradesh and Madhya Pradesh, they are slightly lower than in Haryana, but small flour millers were finding it difficult to compete with millers in other states in the wake of differentiation in wheat prices. The Food Corporation of India pays these taxes to the state on procurement of wheat over and above minimum support price of wheat, which is Rs 1,285 per quintal. The president of the Roller Flour Millers Association of Punjab, Naresh Ghai, said wheat products (wheat flour and refined wheat flour or maida) were coming from other states (Rajasthan, Delhi, Chandigarh), and this would now get discouraged. Wheat is sold to millers through the open market sales scheme. Punjab's millers did not participate in the tenders for wheat under the scheme, as the prices were unviable for them (the neighbouring states were offering wheat to their millers at lower rates). Now they will have better access to wheat at a viable price, Ghai said. Millers in Haryana are hopeful, as they expect sales to double now. Close to two dozen mills have shut down in the past few months due to the Centre's unfavourable policy, said C P Gupta, the president of Roller Flour Millers Association of Haryana. "Of 65 mills only 40 were functional and had been operating at 15-20 per cent of capacity. The amendment in the policy will help us revive operations."The country has a buffer stock of wheat, and there are no supply constraints. Consistency in government policy, millers said, was imperative for the growth of small and medium flour mills".

It is alleged, probably with some justification that wheat that is siphoned off from the leaky PDS often ends up in flour mills and that may be the reason why the mills were working at lower capacity to just process the quantities received through back channels. Other wise it is difficult to understand why these mils are still working at all incurring losses! Normal economic sense tells that lower the margin higher should be the volume of production through higher capacity utilization. Good days can be expected for the industry in the coming days under the new policy! The recent announcement by the Prime Minister about rolling out the government's newly discovered Direct Cash Transfer alternative to PDS may still upset the apple cart of this industry.


No comments: