With wheat supply shortage, price hikes, processed foods see major production cut
Wheat crisis was initiated with a suspension of the foodgrain trade immediately after the beginning of the war between Russia and Ukraine – the two major global suppliers of wheat. It has intensified with the ongoing dollar crisis
The processed food industry has witnessed a major cut in production over the last couple of months, sector insiders said, as wheat – the key raw material of the industry – saw a drastic fall in supply and an abnormal increase in prices amid the Russia-Ukraine war and a subsequent dollar crisis.
"The prices of wheat flour doubled over the past year due mainly to supply shortage. The sugar [another key raw material] market is also unstable. The situation has put us in a survival battle," said Mohammad Jalal Uddin, president of the Bangladesh Bread, Biscuit-o-Confectionary Prostutkarak Samity.
"We, however, have failed to increase our processed food item prices in proportion to the raw material prices, considering the market situation. So, we have been forced to cut production by 25-30%," he told The Business Standard, noting that wheat flour is mostly used in producing bread, cakes and biscuits.
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"We have somehow been able to adjust 50% of raw material price hikes with our food items prices and have reduced our daily production to manage the rest of the burden," said Ifad Multi-Products Limited Managing Director Taskin Ahmed.
"Raw material, including wheat, prices have increased by 40%. Yet we do not get the supply of our required amounts," added Parvej Saiful Islam, chief operating officer of Square Food and Beverage Limited.
Officials of Bashundhara Food and Beverage, another leading player in the processed food industry that also supplies packed flour to local markets, told TBS that their flour is about to run out of stock due to repeated failures in sourcing wheat. With their back to the wall, they are keeping their flour mills idle.
According to industry insiders, the wheat crisis was initiated with a suspension of the foodgrain trade immediately after the outbreak of war between Russia and Ukraine – the two major global suppliers of wheat. Although the suspension was lifted a few months later, Bangladesh failed to return to normal wheat imports due to the dollar crisis.
As shown in Food Ministry data, Bangladesh imported only 19.18 lakh tonnes of wheat in the first eight months, until February, of FY23, while it was over 40 lakh tonnes in FY22 despite a disruption in trade for several months. The annual demand for wheat in the country is 70-75 lakh tonnes, industry people said, of which only 10-12 lakh tonnes are produced locally and the rest come from abroad.
"The import of wheat has fallen drastically due to the dollar crisis, because of which the opportunity to import the foodgrain from war-engaged Russia and Ukraine cannot be utilised, as well," said Redwanur Rahman, general manager of Bashundhara Food and Beverage Limited.
The crisis can intensify further in the near future as there is no shipment of wheat in the pipeline, according to data from the Food Planning and Monitoring Unit of the Food Ministry as of 26 February. Akij Resources Limited Chief Strategy officer Minhaz Ahmad, however, told The Business Standard that the firm is now waiting for a consignment of wheat from Canada.
"We are going through a shortage in wheat supply, due to which the supply of flour to the market is also lower," said Faria Yasmin, business director of ACI Foods, which sources wheat from local farmers and supply flours to markets.
The company also markets some processed foods, including cakes, which require the use of flour. "Due to the hikes in the prices of sugar, eggs and wheat, the cost of making processed products has increased by more than 50%. For this reason, we have substantially cut our production."
Companies manufacturing food products initially were in a dilemma whether they would increase prices or reduce production. They, however, finally adopted both strategies. "There are different stages of such crisis management and we have now reached the final stage. If prices are increased in the current situation, on the one hand we will lose competitiveness. On the other hand, compromising with product size or quality is not possible anymore," added Faria Yasmin.
Flour now costlier than rice
The prices of flour have increased to such a level that has surpassed rice prices, which prompted many consumers to reduce their flour consumption. Even the supply of flour to super stores and grocery shops became limited.
A kg of packed flour used to cost Tk40-45 last year, which spiralled toTk68-78 now. The price of non-packed flour also jumped to Tk60-62 per kg from Tk34-35. At the same time, some coarse and medium-quality rice is now available between Tk50-60 per kg.
"As we observed, common people have reduced their consumption of flour due to high prices. Now they have increased dependence on rice," Taslim Shahriar, senior assistant general manager of Meghna Group of Industries, told The Business Standard.
Bangladesh was mostly dependent on Russia and Ukraine for wheat import for their quality food grains at competitive prices. Besides, a big portion of wheat used to come from India, which got suspended with the Indian government's interference to protect its country amid the global foodgrain crisis. Another major supplier of wheat used to be Canada, but it always demands high prices.
Currently, opportunities to import wheat from all the sourcing countries, except India, are open but Bangladesh fails to import that due to the dollar crisis. And the prices of whatever is being imported are also higher due to the costlier greenback.
