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Home Spotlight Special Report: World Bread Day

Low wheat output seen to raise prices

Othel V. CamposbyOthel V. Campos
October 15, 2018, 9:00 pm
in Special Report: World Bread Day
Reading Time: 4 mins read
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A flour industry expert expects the low global wheat production this year to translate into higher local flour prices in the coming months.

Low wheat output seen to raise prices

Ricardo Pinca, the executive director of the Philippine Association of Flour Millers Inc., said the devaluation of the peso against the US dollar and the unrelenting fuel price hikes would exacerbate the situation.

“Global wheat [supply] is at its five-year low. It is not only the US that has low production, even the world’s biggest producer, the European Union is entering a six-year low production period,” he said.

Germany, France, Sweden, and the Baltic nations reported lower production, year-on-year, he said.

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Based on the global wheat production report, Russia, Kazakhstan, and Ukraine were expecting a 15-percent to 20-percent decline in output, with Russia fearful of rain affecting harvest that might cause lower quality. There were also concerns that the 12.5-percent protein wheat could be in tight supply now.

“So the issue is not simply quality, but also quantity that could further jack up global prices, no matter where the origin is,” Pinca said.

Canada, the second biggest exporter of milling wheat of the Philippines, next to the US, warned of a production drop of 2 million to 4 million metric tons.

The Philippines sources 95 percent of its wheat requirements from the US.  Prices fluctuated from $192.17/MT in January 2018 to $212.38/MT in September 2018.  Prices peaked at $236.63 in August 2018. 

Global wheat prices may hit the $300/MT mark, according to analysts, driven by several factors such as the cost of global prices, cost of freight, peso-dollar exchange rate, logistics and labor cost.  This means the price of local flour may soon adjust accordingly.

Pafmil said flour prices may hit more than P700 per 25-kilogram bag, up from about P640 to P660 per bag at present.

The entry of independent, non-affiliated wheat milling companies increased the local flour industry’s capacity by 25 percent to 5 million MT from 4 million MT.

From 12 companies, there are now 21 flour millers, including the new players in Cebu, Laguna, and Subic. New industry players started operations in 2010 and added a combined capacity of 909,000 MT a year.  

The new capacity added to the annual 2.55 million MT output of Pafmil members and the 1.6 million MT production of the Chamber of Philippine Flour Millers Inc. 

New millers include Monde Nissin Corp., Atlantic Grains Inc., Asian Grains Inc., New Hope Flour Milling Corp., Great Earth Industrial Food Inc., North Star Flour Mill, Mabuhay Interflour Mill, AgriPacific Corp., Big-C Agri Miller, and California Flour Mill Group.

Pafmil and Chamflour represent the groups of institutional flour millers. Pafmil members are RFM Corp., Liberty Flour Mills Inc., Wellington Flour Mills, Pilmico Foods Corp., General Milling Corp., Universal Robina Corp., and Philippine Flour Mills. 

San Miguel Mills Inc., the country’s biggest flour miller, and Philippine Foremost Flour Mills, the country second biggest flour mill belong to Chamflour. Its other members are Morning Star Milling Corp. and Delta Milling Industries, Inc.

Pinca said that with the entry of new players, there was a surplus or unutilized capacity of 48.7 percent, but milling wheat imports remained high at 2.6  million MT.

“The industry, I presume is just preparing for the expected increase in demand. Consumption of flour-based products is steadily increasing by 6 percent yearly. This is due to improving economy and purchasing capacity of Filipinos,” he said.

Pinca said an increase in demand is inevitable as the country’s population keeps growing year-on-year.

Data show that per capita consumption of flour increased in the last four years from 19.9 kilograms in 2015 to 21.3 kg in 2018.  However, bread consumption is still much lower than per capita rice consumption of 114 kg.

Competition also encouraged players to diversify flour production to suit the requirement of certain products. The industry started customizing flour for different products such as bread, noodles, cake/biscuit, siopao, and pizza.  There are also all-purpose flour and whole-wheat flour.

New players effectively reduced other companies’ share of the market and some millers also ventured into downstream production. 

URC recently created bakery subsidiary Baker John Bread Products on top of its production of Ideal Pasta, Payless Noodles, biscuits, cookies and others.

SMC is also now into community bread production with its Kambal Pandesal, while Philippine Foremost debuted its pasta line Amigo. General Milling has its Pasta Magnifico, while Morning Star has Pasta Prima.

Strong local competition also limited imports to only 8 percent, with Turkey remaining the biggest supplier of 2.94 million bags or 44.3 percent of total imports. Turkey is followed by Vietnam with 1.9 million MT or 28.9 percent share and Indonesia with 1.18 million MT or 17.8 percent.

Bakery products take the lion share in wheat flour distribution at 55 percent and account for 1.15 million MT yearly. This is followed by noodle production with 22 percent or 437,000 MT.

Cookies and crackers account for 18 percent or 375,000 MT; pasta, 2 percent or 42,000 MT; and other products, 4 percent or 83,000 MT.

Of the bakery products, pan de sal has the biggest share of 19 percent, with 396,000 MT of wheat flour. Loaf bread comes next with 18 percent or 375,000 MT, followed by cakes and pastries with 12 percent or 250,000 MT, and buns and rolls with 6 percent or 125,000 MT.

For the bread sector, large companies like Gardenia Bakeries account for 20 percent of the market, while smaller community bakeries still dominate the market with 80-percent market share.

Monde Nissin Corp. leads the noodle makers segment with 60-percent market share, followed by URC with 17 percent and other small players with 23 percent.

Tags: Gardenia BakeriesMonde Nissin Corp.Philippine Association of Flour Millers Inc.Ricardo Pinca
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Othel V. Campos

Othel V. Campos

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