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Government intervenes to stabilise flour prices

By A E James

MUSCAT: The government has decided to reintroduce subsidies to flour mills to stabilise prices of wheat flour amid soaring wheat prices in the international markets.

This is expected to check any rise in prices of basic food items of daily use like bread and bakery products.

Further, two flour mills - Oman Flour Mills and Salalah Mills - have been allowed to bring back their average wheat flour price to 2008 levels of RO202 per tonne, from RO187 a tonne now.

Both these measures were taken to eliminate anticipated losses, and thereby, maintaining the margins of flour mills in the wake of soaring wheat prices in global markets.

"The average wheat price was around $210 per tonne in August this year. It suddenly soared to touch $350 a tonne now," Ali Habaj, chief executive officer of majority state-owned Oman Flour Mills told Times of Oman.

He said the government-administered price for wheat flour during the peak time of 2008 was RO202. However, when the wheat prices in the international markets came down, the companies brought down flour prices to RO187 per tonne.

Asked whether bakeries will raise prices of bread, Habaj said, "when the mills brought down prices of wheat flour to RO187 per tonne from RO202, there was no similar reduction in prices of bread. I don't think it (rise in prices of bread and other bakery products) will happen". When wheat touched a record high in 2008, the government supported local companies by introducing subsidies. As a result, there was a positive impact on curbing the severity of soaring flour prices as well as on the cost of bread. The subsidy calculation of wheat flour is a complex mechanism, and depends on the grade of wheat and whether it is imported on cost and freight or free on board basis.

Oman has two flour mills - Oman Flour Mills and Salalah 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 the 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.

The recent rise in prices of wheat was mainly due to a crop failure in Russia and few other major producing countries. Lack of rain in Russia, Kazakhstan and the European Union countries resulted in jacking up prices and Russia even clamped a ban on wheat exports.

Omani companies import different grades of wheat from Australia, Europe and Iran. Market analysts said that the growing trend in wheat prices is a problem for flour mills across the Gulf region as the industry is vulnerable to fluctuations in international prices.

© Times of Oman 2010