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Oman: Soaring wheat prices may make flour, bread dearer

MUSCAT: The soaring wheat prices in the international markets since the beginning of the month is likely to jack up prices of wheat flour, besides bringing down margins of flour mills, if it continues for some more months.

"Wheat prices soared by 20 to 25 per cent to touch $280-290 per tonne this month alone," said a senior official of a leading flour mill.

Although it is too early to predict the future trend in prices, industry sources indicated that the local flour producers will be left with no other option but to pass on the additional burden to the consumers, if it continues for some more months. "However, it is too early to comment on it. We have to wait and watch the trend in prices."

Oman has two flour mills -- majority state-owned Oman Flour Mills and Salalah Flour Mills. In fact, wheat prices show tremendous growth at a time when the government is taking efforts to raise strategic reserves of essential food grains to maintain price stability.

As part of this initiative, the government is building a 200,000-tonne capacity silo facility at Sohar Port and enhancing the storage facility at Salalah from 40,000 tonnes to 140,000 tonnes. This will help Oman maintain a strategic reserve of food grains for nine months as against three months now.

Crop failure
The recent spurt in wheat price was mainly due to a crop failure in Russia and few other major producing countries. "Russia declared that the actual wheat production will be much lower than the earlier estimate," said a market analyst. Lack of rain in Russia, Kazakhstan and the European Union and floods in Canada have damaged crops, boosting wheat futures across the globe since June.

Omani companies import different grades of wheat from Australia, Europe and Iran.

Market analysts said that the growing trend in wheat price is a problem for flour mills across the Gulf region, as the industry is vulnerable to fluctuations in international prices.

According to a leading brokerage firm, a UAE-based flour producer's gross margin fell from 23.6 per cent in the second quarter of 2009 to 20.2 per cent for the same period of this year, mainly due to soaring grain cost. When wheat touched a record high in 2008, government supported local companies by paying subsidies on flour.

As a result, there was a positive impact in curbing the severity of soaring flour prices as well as on the cost of bread.

However, the prices started coming down thereafter and flour producers started bringing down selling price of flour products.

© Times of Oman 2010