February 1, 2011

 

Indonesia struggles with high wheat prices

 

 

Indonesia's flour millers plan to raise their product prices next month due to rising wheat prices.

 

Global wheat prices will likely rise further in the next few months and the impact of the rise will be seen in the prices of by-products.

 

Indonesia is one of Asia's largest wheat importers, purchasing almost half of its needs from Australia and the rest from the US and Canada. Its flour market is growing by around 6% in size annually.

 

The government briefly imposed a 5% import duty on wheat on December 22 to harmonise tariffs under WTO guidelines, but scrapped it last week.

 

Flour prices have been stable in Indonesia in recent months due to factors such as a strong rupiah, which kept wheat import prices under rein, and the drawdown of stocks imported earlier at lower costs, Franciscus Welirang, chairman of Indonesia's flour mills association, Aptindo, told Dow Jones Newswires.

 

However, wheat import costs have risen sharply recently due to a rise in global prices and flour prices will be hiked accordingly from next month, he said.

 

There are around 15 flour milling companies in Indonesia and flour is also imported, so competitive factors will be taken into account while calculating the size of the hike, said Welirang, who is also chief executive of Indonesia's largest flour mill, Bogasari.

 

Traders said Indonesia's flour prices currently range between IDR115,000 (US$12.72) and IDR160,000 (US$17.69) per 25-kilogramme bag, depending on the quality.

 

Earlier, cheaper flour was directly imported from countries such as Turkey but even that will become costlier for fresh trades due to a surge in global wheat prices, said Arifin, a Medan-based trader, who like many Indonesians, goes by one name.

 

Indonesia has now started importing small volumes of Pakistani wheat in containers for milling purpose, said a Singapore-based executive at a global trading company.

 

The price advantage Turkish flour had over local processors has now eroded, said Bogasari's Welirang.

 

Milling wheat prices in the cash market have risen by more than 50% since last June last year amid the supply squeeze.

 

Welirang said Indonesia's flour mills continue to source most of their milling wheat from Australia, but prices are higher.

 

Milling wheat from drought-hit Western Australia is being purchased around US$370/tonne, basis cost and freight. High-quality milling wheat from the US is being sourced around US$410/tonne, c&f, he said.