October 24, 2006

 

Japan to link imported wheat prices to market trends

 

 

Japan's Ministry of Agriculture would from next April adopt a new system for pricing wheat in which the cost of imports would be linked to market prices two to three times a year, ending the current practice of fixing the figure once a year, the Nihon Keizai Shimbun reported Tuesday (Oct 24).

 

This would be the first change in the pricing policy in 59 years.

 

The ministry would simultaneously introduce an auction system intended to allow flour milling firms to make bids for wheat procurement.

 

The move to more closely link wheat prices to market movements would change the grain's status to that of an "ordinary commodity," such as rice. Japan imports roughly 5 million tonnes of wheat annually, or about 90 percent of domestic consumption.

 

Under the existing system, the government purchases all the wheat through trading firms and sells it to firms at prices slightly above those for domestically produced wheat.

 

The benchmark price for wheat sold to milling and other companies is currently Y45,350 a tonne (US$380), about twice what the government pays to purchase it. The government uses proceeds from the gap between the benchmark rate and its purchase price to finance the subsidies for wheat farmers.

 

The new system, under which the government can revise its sales price after taking into account international trends, allows it to adjust the cost according to fluctuations in overseas prices.

 

Given that international wheat prices are hovering around a 10-year high, the new system may push up the retail cost of wheat and wheat products.

 

The existing method has created strong dissatisfaction among flour milling firms, because even when international prices decline, they still have to buy expensive wheat.

 

Conversely, the government at times has to maintain lower prices despite rises in market price.