Flour price may soar 20% in October due to low harvest

The Jakarta Post, Jakarta | Mon, 08/23/2010 9:57 AM | Business
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The Indonesian Sugar and Flour Traders Association (Apegti) predicts that the country’s flour price may rise 20 percent starting from October due to increased world wheat prices stemming from decreased global production.

The price of wheat in several stock exchanges rose after the government of Russia announced that the country would temporarily halt wheat exports from Aug. 15 to Dec. 31 due to the severe drought that hit the country recently.

The UN’s Food and Agriculture Organization (FAO) estimates that Russia’s 2010 wheat production may drop 20 million metric tons to 42 million or 43 million metric tons.

Two weeks ago, the price of a bushel of wheat at the Chicago Commodities Exchange rose US$5 to $7.50.

Apegti chairman Natsir Masyur said Saturday that the local price of flour would be hugely influenced by world wheat prices because the entire supply of wheat to the country was imported.

“Given our wheat stock, no price increase is expected until September, but after that, we may see a 20 percent increase in prices,” he told The Jakarta Post via telephone over the weekend.

He said that currently, Indonesia imported 4 million tons of wheat and 500,000 tons of wheat flour per year from other countries. Australia is the largest supplier of wheat to Indonesia, representing 75 percent or about 3 million tons of the total wheat import.

Although rice remains the major staple food in Indonesia, wheat flour is also widely used for making bread and especially instant noodles, which feature heavily in local cuisine.

Indonesian Flour Mills Association (Aptindo) chairman Fransiscus Welirang said the domestic flour industry was highly dependent on international market conditions and a domestic price increase was unavoidable.

“We follow the market, so domestic flour producers can’t determine the price on their own, ” he told the Post.

He said that if domestic flour producers increased prices, it could affect the purchasing power of people to buy flour and flour-based products.

However, Fransiscus said, increased prices of wheat and flour would not bring any serious impact as many alternatives were available in the country.

Fransiscus, who is also a director of PT Indofood Sukses Makmur, the world’s largest producer of instant noodles, said that his company had enough stock for the next three months, but could not ensure that prices would remain stable.

He added that the impact on Indonesia of the decline in Russian wheat production was not as bad as when Australia’s wheat production fell in 2008. He said that Russian wheat represented only 1.5 percent of the total wheat import.

Apart from Russia, the Canadian government also predicts that its wheat production may fall 15 percent to 22.7 million metric tons this year from 26.5 million metric tons last year. The major causes of the decline in Canada wheat production were flooding in Saskatchewan and Manitoba that curbed seeding and crop development.

The FAO revised its prediction on the world’s total wheat production from 676 million to 651 million metric tons, but said that the current wheat crisis had small possibility of turning into a severe food crisis. (rdf)