Exchange tactics

30 January, 2009
The fall in sterling versus the euro is causing headaches for UK bakers, as ingredients and equipment prove more expensive to purchase. Patrick McGuigan reports on their reaction
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It's not just British holiday-makers accustomed to flashing their cash on the Costa Brava that are crying into their bottles of San Miguel. The dramatic fall in the value of the pound just before Christmas, which saw it reach close to parity with the euro, is also worrying news for bakers in the UK, who are surprisingly reliant on their Continental cousins for equipment, ingredients and packaging.
Between November and January, the value of sterling against the euro fell from £1.25 to close to parity - a 20% drop - before plummeting to 94p (as of 23/01/09). This is part of a longer-term decline, which has seen the pound crumble from a high of £1.50 against the euro in January 2007.Such steep falls cannot be absorbed by importers forever and the price of European goods have either already gone up or are likely to increase over the next few months. One importer of olive oil, olives and sun-dried tomatoes for speciality breads said that it would institute a 10-15% price rise in January because of the currency situation.Meanwhile Norbake, which imports machinery from Europe, has already raised prices by 15% over the past year, accor-ding to sales executive David Charlesworth. "We have to review prices all the time. The euro has gone up by so much that we have to pass it on," he said.To give an idea of how the decline in sterling has affected prices, a new four-deck Mondial oven from Italy would have cost £11,500 two years ago; the list price today is £14,995. However, if the value of the pound were to bounce back, Norbake would bring prices back down, said Charlesworth. He also expected an increased uptake of refurbished machinery, which is a third to 50% cheaper than new.This was a tactic recently employed by artisan bread producer The Bread Factory in Hendon. Co-MD Tom Molnar was planning to buy a new mixer, oven and stainless steel tables from European suppliers before Christmas, but opted for second-hand equipment from UK companies instead. "Between November and December prices went up by around 20%, so we bought used machinery in the UK instead," he said.Molnar was also bracing himself for a 5-20% rise in the price of speciality ingredients, such as olives and olive oil, in the coming months. "The weak pound is shaking things up," he said. "When you see a 20% hike in the price of something, it motivates you to look around. We are trying to source more from UK producers."Premium on packagingBrad Vine, general manager of London wholesaler and retailer Exeter Street Bakery, has also seen price rises caused by the falling pound, particularly in packaging. "Paper bags and cardboard boxes went up by 15-20% in December and we are planning to shop around in the new year," he said. At French flour importer Moul-Bie, director Michel Nguyen said all importers are under "big pressure". "We're not putting prices up for the time being, but whether this is sustainable, we don't know," he said. "There has been a 30-40% fall in the pound [in the past two years] and it's difficult to absorb that long-term."Moul-Bie is able to keep prices as they are in the short-term partly because a good harvest in Europe last year has resulted in lower grain prices, said Nguyen. The fall in oil prices has also helped.Those lucky importers that forward-bought euros before the sudden drop in sterling are also protected in the short term, but at some point they will have to face up to the unfavourable exchange rate and decide whether to agree further long-term currency deals or buy from week to week."The big debate is how far in advance to buy - three, six or 12 months? There is a problem with visibility - nobody knows what is going to happen next," added Nguyen.While the future is hard to predict, it seems safe to say that the days of cheap foreign holidays are a long way off.



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