Biscuits don’t reflect falling wheat prices

Govt's Higher MSP To Farmers Keeps It Up

Mumbai: Even as global prices of wheat — a key ingredient in biscuits to burgers — have fallen to their lowest levels in two months in February 2009, prices of packaged food products dependent on the commodity in India are unlikely to come down.
    According to Amit Jatia, MD & JV partner, McDonald's India-south & west: "Worldwide, wheat prices have definitely come down but not in India as an increase in the minimum support price (MSP) provided by the government to farmers. In fact, there is a small increase in price of wheat flour that we buy. But as a practice, we at McDonald's leverage economies to minimise costs while maximising value to customers.''
    According to Rabobank's monthly report on commodities, global wheat prices are lower by 60%, on a year-onyear basis, because of a rebound in world stocks to comfortable levels caused by record world wheat production.
    However, in India, the government has increased the MSP by Rs 80 per quintal to Rs 1,080. A few state governments too have announced bonuses. Madhya Pradesh, for instance, has announced a bonus of Rs 50 per quintal resulting in higher procurement costs.
    Wheat flour forms close to 2.5% of McDonald's overall purchase in value terms. "It is important to note that wheat flour is bought by our suppliers and not by McDonald's as it is a primary ingredient in the buns,'' said Jatia.
    For a biscuit company like Britannia Industries, wheat contributes over 25% of its total material cost. "Additionally, price of another major commodity—sugar—has increased by approximately 30% in the last six months on account of lower projection for next year. However, prices of oil & fats have reduced as the global demand has declined. Overall, commodity prices continue to be firm/stable and there is no significant reduction,'' said a Britannia spokesperson.
    However, a slowing down in the rate of inflation has certainly helped food companies curtail costs. The McDonald's menu is priced at a level that a large segment of Indian consumers can afford. "The value initiative at McDonald's is allpervasive. Our strategy is to achieve best value by enhancing experience (offering best quality), while keeping prices reasonable. McDonald's Happy Price menu of Rs 20 onwards is a classic example,'' said Jatia.
    The company works closely with its suppliers to increase efficiencies, improve yields and reduce wastages, thereby, reducing costs.
    Companies are also gradually moving the pricing parameter from being directly impacted by commodity price fluctuations to a more dynamic variable. For Britannia, its investment in brand building, product/packaging development, is guided by what the company wants to achieve for its brands & the cost effectiveness of doing so, irrespective of commodity cost.
    Britannia, which has led the market in product and packaging innovation, has commercialised both in-home & out-of-home consumption opportunities, with a focus on increasing biscuit consumption.