The cost of bread is forecast to rise after the effects of a dry summer pushed up the price of wheat by 25% to 30%.
Prices in stores have already risen in recent months and are likely to continue going up as Associated British Foods (ABF), the owner of Kingsmill, said the impact of its rising costs would be “reflected in our ongoing discussions” with retailers.
The UK wheat harvest was about 13m tonnes in 2018 compared withup to 16m expected in a good year, sending prices up to £190 a tonne compared with £120 a tonne before the Brexit vote in 2016 and £150 after the subsequent fall in sterling.
“Our costs have gone up with wheat up by 30% and we have got to talk about that with retailers,” said the ABF finance director, John Bason.
The average price of an 800g white sliced loaf was up more than 8% in July compared with May 2016, the month before the Brexit vote, according to the Office for National Statistics which regularly checks prices in order to calculate overall retail inflation. Its price has jumped from 97p to 105p after a fall in the value of the pound two years ago and this year’srise in the cost of wheat. Pressure on prices has also come from the increase in the legal minimum wage and other factors.
Shop prices are partly kept in check by heavy competition on basic foods between the major supermarkets and discount grocers Aldi and Lidl and a shift towards own-label bread, away from brands such as Hovis and Kingsmill.
Major supermarkets are also partially insulated from sharp price moves by long-term supplier contracts, but the surge in wheat prices is now being reflected on the shelves.
Gordon Polson, the director of the Federation of Bakers trade association which represents most of the UK’s biggest break makers, said: “There’s no doubt price increases are in the pipeline. [Profit] margins are very, very tight as the industry has acknowledged and it doesn’t take much to tip you into the red.”
He said rises might not flow through immediately but would be reflected in long-term contracts being negotiated between bakers and retailers now this year’s wheat harvest had been completed.
Charles Clack, a commodities analyst at Rabobank, said there was likely to be pressure on the cost of bread as wheat prices were likely to remain high for at least six months because of a global shortage.
“The heat really ravaged Germany and Poland and yield is really down significantly. There are not only shortages in Europe; other countries including Russia, Australia and Canada have been disappointed in terms of yield,” Clack said.