Global weather woes could boost food manufacturers' input prices

Guy Gagan, the National Farmers Union’s (NFU’s) chief arable adviser, told FoodManufacture.co.uk the wheat harvest was two to three weeks later than normal and this could cause problems for food processors.

“Some food processors stocks will be running lower than usual at this time of year. Usually food processors have enough stock to blend one year into the next but some are finding they have very little left,”​ he said.

This meant that the little grain left in the market that was of the right quality would rise in price.

The problem exacerbated by ‘just in time’ delivery requirements, which took no account of the potential problems that relying on nature can cause, he said.

Variability​

With only about 30% of the wheat harvest collected so far, farmers were finding far more variability than had been seen for decades, Gagan warned. Yield and grain specific weight were giving particular cause for concern.

Specific weight is a key indicator of quality and starch content. “Quite lot of the processors are looking for the starch out of the grain so there is going to be more work in finding the appropriate quality for each processor.”​

Relying on imports to supplement UK yields was likely to prove costly − with drought depressing yields and boosting prices in in North America, Russia and Germany. The vast area of North America devoted to growing energy crops was also adding pressure on prices.

Gordon Polson, director of the Federation of Bakers, accepted that the signs were not good, but said it was too early to be certain of the outcome.

He told FoodManufacture.co.uk: “There are clearly going to be some issues but with the timing of the harvest people are cautious about rushing to conclusions. It is obvious there are going to be some challenges but how that will manifest itself it is too early to say because we are not buying that wheat yet and have not tested the quality.​

Challenges​

“People are expecting some challenges, but whether they are in terms of quality as far as the UK is concerned, or whether they are the more global pricing issues, it is too early to say.​

“Prices are already high by historic standards, but that is the spot market. We don’t buy on the spot market ​[for immediate delivery] and that does tend to be the feed wheat price as opposed to the price of premium quality required for bread making.”​

If raw material costs rose, however, he said bakers would need to recover them. He explained: “Clearly the price on shelf is determined by the retailer. If we have increased costs we would seek to recover them but that will depend on individual negotiations. ​

“In general, though, I don’t think the baking industry could sustain substantial increases in costs without recovering them.”​

One giant food manufacturer which is particularly susceptible to UK price increases is Premier Foods. Martin Deboo, analyst with Investec, said: “Premier has made life difficult for itself by standing behind the marketing claim that Hovis uses only 100% British wheat.​

“Assuming the claim is maintained, the company is entirely on risk for UK wheat prices and can have no recourse to alternative sources of supply, such as the Canadian wheat used by Warburton’s.”​