UK bread prices look set to rise in the coming year as farmers switch to other activities as increasing fertiliser and fuel costs hit their margins on milling wheat.
Soaring fertiliser costs - related to rising oil costs - in the past year are likely to significantly affect the profitability of milling wheat production in the coming one or two years.
This, combined with milling wheat prices dramatically falling to around £120/t in recent weeks compared with record highs of around £200 last year, could result in negative margins for producers next year. And it is causing some UK farmers to think about not sowing next year’s crop and looking for other more profitable areas of activity until margins improve.
Speaking at the Home Grown Cereal Authority’s grain market outlook conference last week, Julian Bell, senior rural business consultant for SAC, said: “It’s fertiliser [cost rises] that is the really important one; but fuel is also important.” He added: “There just won’t be the incentive to put in so much wheat.”
Alex Waugh, director general of the National Association of British and Irish Millers, said: “Long term [increasing costs] are likely to drive bread prices up.” That was despite recent news that some manufacturers were cutting their bread prices.
Bell presented figures from the Department for Environment, Food and Rural Affairs, which showed fertiliser costs had increased 161% between July 2007 and July 2008. Over the same period feed wheat costs had increased 62% and fuel 50%, he said.
The consequence was that wheat variable costs had risen by 70% or £300 a hectare for the 2009 harvest, added Bell, which equated to an extra £36/t. “Once you get to £90/t [variable costs] it’s not leaving you very much room for margin the way the market is at the moment.”