You don’t hear many complaints from plant bakers these days about retailers selling bread below cost. But that doesn’t mean everything in the bakery is rustic. The sector still faces major challenges of restructuring and adapting to changing consumer lifestyles. And adapting to these will not be painless.

Many bakers have succeeded in adding value (and with it margin) to the supermarket bread fixture in recent years. But even so, problems of overcapacity in the own-label sector have persisted: the consequences of which were played out quite graphically with last year’s rise and fall of Harvestime (2005).

Innovation will be the cornerstone of bakery’s future success. As Sainsbury’s trading director Mike Coupe succinctly put it when calling for the sector to "drive trends" while remaining flexible to demand: "Differentiate or die." Unfortunately, that’s easier said than done for plant managers in charge of equipment and production lines that have historically been designed to make ’squillions’ of the same product, rather than lots of different ones.

There has been some success in the plant baking sector, however. Take the Federation of Bakers’ (FoB’s) campaign to prevent the European Union passing legislation to abolish ’prescribed quantities’, for example. Bakers had feared abolition would have a detrimental effect on the UK market where, unlike on the continent, 80% of bread is pre-packed. "There is a danger that de-regulation could throw the market into confusion and customers could be deceived," warned FoB director Gordon Polson in his annual report.

The FoB may have won the first battle in getting the European Parliament to vote for retention of prescribed quantities, but this has not been accepted by the European Council and the issue is certain to re-emerge.

On health, although bakers have been congratulated for leading the way in making salt reductions, further targeted reductions have been set. But some fear that the technical limits of salt reduction are fast being approached and that any further reductions will have a serious detrimental impact on taste.

And then there is the issue of fortification, with a report on folic acid fortification of flour soon to be published by the FSA. According to Polson: "If mandatory fortification is the government’s decision, there are other issues that have to be resolved: including whether the folic acid would be added to organic flour, the impact of labelling, particularly the labelling of products for export, and the costs of addition and who would pay."

Concerns over the carcinogen acrylamide, which is produced during baking, have also focused the industry’s attention. Progress has been made in reducing levels in products like bread, biscuits and breakfast cereals. But some experts believe the solution lies in reducing the amino acid aspargine (a precursor for acrylamide) in wheat, and a three-year research project has been commissioned by the FoB and the National Association of British and Irish Millers to test the theory.

Bakers aren’t the only ones with overcapacity problems, however. The same is true for millers, and mill closures continue.

Around 6Mt of the 16Mt of wheat produced in the UK each year goes into baking. But the lack of trust between farmers, wholesalers, millers, manufacturers and retailers has resulted in little incentive to collaborate to resolve quality and supply problems. However, things are changing on this front.

The government funded Cereals Industry Forum (CIF), part of the Home Grown Cereals Authority (HGCA), has £2.5M funding from the Department for Environment Food and Rural Affairs and the Department of Trade and Industry, to improve the sector’s competitiveness. It is half way through a three-year programme, which includes eight ’value chain analyses’ and 48 projects called Probes, to promote business excellence.

Probably the biggest obstacle the CIF faces is in reassuring suppliers that if supermarkets get involved in the supply chain projects, they won’t just exercise their muscle and grab any financial savings identified.

"The problem is people are looking at forecast rather than real demand," says CIF manager Chris Barnes. "There is still a big challenge in the cereals sector to get the chain more connected."

But better supply chain collaboration is unlikely to happen overnight and many entrenched suspicions will remain. As Barnes admits: "It will take time for the cereals industry to evolve." FM