Flour costs to force up bread prices

A price hike of as much as 7p on a loaf of bread on supermarket shelves could be on the cards by the autumn as large rises in the cost of flour start to feed through.

Former Investec analyst David Lang warned that rises of up to £60 a tonne in bakers’ flour could be expected. This could result in price rises of anywhere between 3p and 7p a loaf, he suggested.

“You are all going to be paying a lot more for your flour in a few month’s time,” Lang told an audience from the bakery sector at an event to celebrate the 150th anniversary of independent miller Jas Bowman & Sons last week.

However, he argued that price volatility was fact of life in the sector, which was here to stay. “Life is going to be a lot more hairy for cereal and flour buyers in years to come.”

Alastair Dickie, an economist and grain specialist with the Home Grown Cereals Authority (HGCA), supported this view: “We are in a period of extreme dynamic in the market place, which is not going to change.” He said growing demand for biodegradeable packaging would exacerbate pressure on wheat and maize prices.

The recent almost record high prices for bread wheat of £155 a tonne are a result of several factors, including shortages in supply due to low stock levels, adverse weather conditions around the world and rising demand for biofuels. “Agricultural prices are going to be driven to a higher plain, principally due to [demand for maize-derived] ethanol,” said Lang.

However, the HGCA’s Dickie disputed arguments that recent high cereal prices were primarily due to demand for biofuels. He suggested it had more to do with other factors, such as adverse weather conditions. But he accepted that demand for biofuels would start to push prices up.

Dickie also argued that higher cereal prices would result in more land being used to grow grain to meet the increased demand, which he said was rising globally by 20Mt a year. “You’re going to get more grain in the world market as the price goes up,” he argued. “I expect 20% higher grain supplies worldwide over the next four to five years.”

A new report from the World Food Organisation and the Organisation for Economic Co-operation and Development predicts that food prices will continue to rise over the next 10 years. The trend will be driven by more sugar cane, maize and oil seed rape being grown to fuel cars and people in developing countries such as China and India boosting the proportion of meat in their diets. As meat production rises, more feed cereal is needed and this puts press on grain prices.

Guy Bowman, chief executive of independent miller Jas Bowman & Sons expected the biofuels issue to peak in about 10 years time, once hydrogen fuel cell technology started to relieve pressure on ‘agrofuels’