Tokyo, Aug 16 - Japan is set to raise prices on imported food wheat from October, making flour millers shoulder more of soaring global prices, a farm ministry official said on Thursday, in a move likely to increase the price of baked goods.
Japan buys centrally major five wheat types from the United States, Australia and Canada via tenders, and sells to millers at prices fixed twice a year, including a margin to subsidise local farmers, under a scheme introduced earlier this year.
Imports will account for 85 percent of Japan's total wheat demand of an estimated 5.74 million tonnes in fiscal 2007/08.
The ministry initially planned to limit price changes each half-year to 5 percent but with Chicago prices jumping 25 percent in the eight months to July, the next price jump would likely be bigger than that, the official said.
"If we were to stick to the 5 percent limit, we would have to raise the sales prices next April even if market levels remain the same," the official said.
"Also, it looks that the market has entered a new price range. If so, it would not be worth sticking to the 5 percent limit," he said, referring to the rally in Chicago this year to 11-year highs.
To match market levels, the price for October to March for U.S. western white, often used to produce flour for home use, would need to rise more than 20 percent from 42,730 yen ($368) per tonne currently, a Reuters calculation showed, but analysts said such a sharp rise would be difficult politically.
BREAD RISING
The official did not say how high prices would go, but the farm ministry has ruled out the possibility of abolishing the limit, saying it should curb a sudden jump in consumer prices of flour and flour products, such as bread.
"Even if the limit is widened to 10 percent, the prices of all five wheat types would be set at their ceilings," a manager at a major Japanese milling firm said.
A relaxation of the price limit for the five types, or 90 percent of total imports, could be decided by the farm ministry alone, but the finance ministry would welcome it as lagging world prices would end up costing the government money, the official added.
A rise in freight rates and a weaker yen have also inflated the ministry's importing costs far more than expected.
An announcement of the new prices is due late next week.
The farm ministry only began revising prices twice a year in April, to allow millers to buy them at prices closer to market levels. Previously, the sales prices were fixed once a year.
Under the scheme, the price for the six months from October to March would be based on a weighted average of the ministry's purchase prices between December 2006 and July 2007.
Along with U.S. western white, the other main imports are of U.S. hard red winter, U.S. dark northern spring, Australian standard white and western red spring from Canada.
The April-September prices for the five types were set at 48,430 yen per tonne on average, 1.3 percent higher than in fiscal 2006/07.
ELECTION FACTOR
Farm policy analyst Hiroshi Kakurai said it was politically difficult to apply a market mechanism to farm matters in Japan and a defeat for the ruling Liberal Democratic Party (LDP) in upper house elections last month had made it even harder.
"A middle way solution would be prefered especially after the LDP's defeat," Kakurai said.
It was the first time in more than two decades that flour millers pay more to the ministry than a year earlier, and several millers have already raised prices of some products.
The ministry's sales prices included port facility costs of 2,007 yen and a mark-up of 16,868 yen a tonne that the ministry includes to pay for storage and other costs and to subsidise local farmers, both to be charged in October-March as well.