Wheat prices surge as traders cash in on import dip

Although wheat price is falling in the international market, Bangladesh sees an opposite trend. 

Local traders are hiking the price of the second-most consumed cereal taking advantage of a decline in imports amid banks' apathy to finance the purchase from external sources for the US dollar shortage, said stakeholders.

Bangladesh has to import around 85 per cent of wheat to meet its domestic requirements for household consumption and industrial uses. It produces the rest locally.

However, the imports of the grain, after touching a six-year low at the end of the last fiscal year, have continued to drop in the current fiscal year of 2022-23, which began in July.

Wheat arrivals slumped 49 per cent to 17.2 lakh tonnes in the May-October period, according to a commerce ministry report submitted to the Prime Minister's Office last month. The grain's marketing year runs from May to April.

The report, citing Reuters data, said the prices of wheat declined 5.4 per cent year-on-year to $371.48 per tonne in the international market on November 23.

The price of the grain dropped 6.13 per cent over the last one month. It was $395 per tonne on October 23.

During the period, the prices of wheat flour rose 9 per cent to Tk 60-Tk 63 per kilogramme in Dhaka, a reverse from the global trend, officials of the commerce ministry said.

Commodity importers and processors blame the spike in the US dollar for the increase in wheat flour price. But officials and consumers' rights bodies said the cost of the American greenback has not increased to the extent that could fully explain the hike in the prices of wheat flour in the local market.

The US dollar gained 21 per cent to Tk 103.6 on November 30. It was Tk 85.8 on the same day a year ago, data from the Bangladesh Bank showed.

By contrast, the retail price of wheat flour was 68 per cent higher yesterday compared to a year earlier, according to the Trading Corporation of Bangladesh.

The National Board of Revenue is offering duty-free import privileges to bring in wheat. So, the import cost has not increased other than the two factors, namely the appreciation of the US dollar and the increased prices of the grain in the international market resulting from the fallout of the Russia-Ukraine war and India's ban on the export of the grain.

"In our country, profit expectation of businesses across the value chain has increased tremendously. It is pushing the price up. Here, common sense calculation will not work," said Ghulam Rahman, president of the Consumers Association of Bangladesh (CAB).

"This is stoking inflation further."

The price of wheat flour, which was Tk 34 per kg in the capital in January, began to rise after Russia's invasion of Ukraine on February 24.

In May, India banned shipments of wheat to contain its domestic prices, which fuelled the prices in Bangladesh as the neighbouring country has become a major supplier of the grain in recent years.

The domestic prices of wheat flour in Bangladesh reached record levels in October, reflecting a slowdown in imports and high transportation costs, due to elevated prices of fuel, said the Food and Agriculture Organisation last month.

Since November 2021, the government has hiked the diesel price twice, sending it to Tk 109 per litre from Tk 65 to minimise the subsidy on petroleum products. It has driven up the costs of transportation.

A senior official at the commerce ministry said prices would not have increased to such an extent had there been monitoring in the market by the concerned authorities.

Biswajit Saha, director for corporate and regulatory affairs at City Group, a commodity importer and processor, says wheat flour now available in the market was bought at higher prices earlier.

The prices may decline if the imports increase, he said.

City Group's average import cost was $480 per tonne, up from $320 a year ago.

Saha demanded that banks open letters of credit (LCs) to facilitate increased imports of wheat and other essentials.

"We are facing difficulties in opening LCs. Banks say they do not have adequate dollars to help us import the grain," said Taslim Shahriar, senior assistant general manager of Meghna Group of Industries, another commodity processor.

He urged the central bank to issue a directive to pave the way for the opening of LCs with a view to ensuring uninterrupted imports of essential commodities.

"Our ship with wheat is waiting at a port in Ukraine. But we can't open LCs to bring the grain," said Shahriar.

"Prices will come down when increased supply equals local demand."

CAB President Rahman said a supply glut will cool prices.

"No business can artificially influence market prices if the government holds one-fourth of the required commodities alone and intervenes. In this situation, fiscal and monetary authorities have a bigger role to play to ensure price stability."

AHM Shafiquzzaman, director general of the Directorate of National Consumers' Right Protection, said his office would look into the factors behind the high prices of wheat flour.