Never has the term 'living on the breadline' had more pointed meaning than it does in the plant baking industry right now.
Everyone knows that processors across the board are struggling with rocketing energy, distribution and raw material costs, but the price of bread wheat in particular has shot up.
According to the latest prices from the Home Grown Cereals Authority (HGCA), now part of the Agriculture and Horticulture Development Board, the June price of bread wheat, as of June 5, remained unchanged at £186/t, with the July price resting at £188.
Retailers have shown some willingness to raise on-shelf prices, but how much filters back to manufacturers? There's little doubt that the industry is still having to shoulder its share of costs and the problem with the big players is that they are already operating at close to optimum efficiency. This makes the cost-cutting quest even more arduous. After a major wave of price increases at the start of the year, many are saying that they will have to go further. "Some have already indicated that they expect to have to increase their prices again," says Gordon Polson, director of the Federation of Bakers (FoB).
The spot price of wheat has peaked, but the storm is far from over, he says. "The next big round of spending will take place at the end of the UK harvest. Probably the spot price is less than the peak price, but actual negotiated rates are still likely to be higher than last year."
We have already seen high raw material costs hit the industry this year. Some bakery operations have partly blamed their slide into administration on this issue. Notably, Tindale & Stanton, which operates from sites at Burnopfield and Gateshead and has now been bought out of administration by Hobson Foods. Elsewhere, 150 people have been made redundant at a Liverpool bakery plant supplying Sayers & Hampsons' retail bakeries. Announcing the decision, Sayers chairman Sandy Birnie said the business's ongoing struggles were "compounded recently by escalating costs of raw materials as well as soaring energy and fuel costs"
One major reason why wheat prices are so high is that world harvests were hit by appalling weather last year. Poor harvests produced sub-standard wheat, which was milled into sub-standard flour. The quality of the end product suffered, increasing wastage as products were rejected by quality control.
Value engineering is one solution. Processors are searching for ingredients that speed up the baking process, cut the total amount of ingredients needed or enable processors to scrap or work with other poor quality components, reducing waste. David Bevan, md of ingredients supplier Fermex, says: "If you can guarantee that you can get 98% of product out the back, fully packed and quality controlled instead of 88%, that's a big saving."
Separate the wheat from the chaff
Fermex is working on ingredients that give dough greater tolerance, providing bigger yields from poorer quality flour, plus emulsifiers that work with fewer ingredients.
Mario Pires, baking and beverages business industry director at ingredients supplier DSM, says: "Flour quality has decreased, but we are solving this by using different cocktails of enzymes and emulsifiers to allow the manufacturer to improve product quality."
Replacing expensive ingredients such as egg or fat with other ingredients that perform the same function in the baking process can particularly cut costs, says Pires. "The main worry lies in maintaining quality, minimising returns and maximising shelf-life. We have been working particularly on the issue of preservation and freshness using solutions that are not available commercially yet."
Aside from value engineering, for the past three years, the industry has been working on projects designed to cut costs and improve efficiencies. They include value chain analyses, diagnostic benchmarking and factory floor masterclasses using a process engineer to boost skills and improve line efficiency.
The projects were co-ordinated by the Cereals Industry Forum (CIF), led by HGCA and the Food Chain Centre. They involved the buy-in of a variety of organisations, such as the National Farmers' Union and the National Association of British and Irish Millers.
Sifting through the costs
Potential cost savings were identified at the grain haulage and grain testing stages, says CIF manager Chris Barnes. "There was a lot of duplication in grain testing. A lot of costs could be knocked out here. The industry is working towards vendor assurance - processors want growers to be more proactive in ensuring that the quality of grain loads meets specifications without testing themselves. We also found inefficiencies in distribution and information flow up and down the chain." Case studies are on the HGCA's website: http://www.hgca.com.
There are other common ways to make savings, such as bulk buying, says Bevan. "When negotiating price increases, people are saying if you can buy two tonnes at a time rather than one, you can save £50."
Investing in kit to replace more expensive processes is all very well if you have the capital, he says. "Financially people are going to be caught between two stools. They could save by buying new kit, but where are they going to get the money initially?"
Targeting products that command a higher premium is one way of claiming costs back, especially where specialist staff (another add-on cost) are not required. This thinking has driven Village Bakery to open a £3M gluten-free bread making facility in Wrexham, which also taps into growing demand for 'free from' products. What better way to avoid paying high wheat costs than by catering for consumers who can't digest wheat? Finsbury Food Group recently invested in this market, announcing in April that it had bought gluten-free and morning goods manufacturer Yorkshire Farm Bakery and its pre-mix supplier A&P Foods.
Away from processing itself, Polson says energy costs are coming under close scrutiny. "I would expect the people responsible for energy buying at the likes of Associated British Foods and Premier Foods to be pretty active at the moment."
With so many cost-saving avenues available, manufacturers may yet have some wiggle room. But Polson is adamant that there isn't much. Back to recouping costs at the retail level, then. "We seem to have moved to a paradigm of much higher costs and consumers will have to appreciate that some items will be sold at a much higher price." FM
Leaving hazards in their dust
With cost-cutting a major priority, the temptation to cut corners is greater than ever, but one area in which there can be no compromises is health and safety.
In particular, the perils of flour dust remain a real danger for the industry, with processors failing to adequately deal with the threats, according to experts.
The Health & Safety Executive (HSE) is about to launch a second phase of inspection campaigns focusing on occupational asthma, which can be caused by flour dust inhalation.
This follows a similar programme a few years ago, says Kelly Griffiths, senior environmental health officer at Bodycote Health Sciences. This time, the HSE plans to get tough, says Griffiths. "If it's looking like you had information from us, or trade bodies, but have done nothing we will be looking at enforcement."
For bakers, the two main ways of tackling the issue remain installing local exhaust ventilation to suck out the dust and personal preventative equipment such as masks.
Meanwhile, Barry Pomford, senior risk engineer at GexCon UK, which specialises in providing advice and training on explosion safety, says flour dust explosions are still a major concern. "If the silo is inside a building you can get an explosion that could take out the whole building," says Pomford. Even outside, vessels themselves could be written off or seriously damaged. He adds: "Secondary explosions, fuelled by dust shaken down from ceilings after primary explosions are also very dangerous, which is why housekeeping is so important."
Part of Pomford's job is trying to convince companies that if they comply with the Dangerous Substances & Explosive Atmospheres Regulation (DSEAR) by applying appropriate safeguards they will end up saving money. "If they comply they will eliminate cost issues; process efficiency increases and cleaning costs go down, sometimes by thousands of pounds."
In addition, firms will avoid paying the costs involved in a major plant explosion or weeks of downtime following improvement notices issued by HSE inspectors.
Magnetic filters could help prevent the build up of small pieces of metal being sucked into silos, which contributes to explosions, he says.
Ironically, some firms overreact by spending more time and money than they need to establishing hazardous zones. "The problem is you have to make sure everything is suitable for use inside a hazardous zone." That represents a big drain on resources.