Premium bakers better placed for cost rises
Published:  25 August, 2010

Bakery manufacturers making premium goods are better-placed to ride out the commodities pricing storm, according to a leading ingredients supplier.

However, those making ‘value’ bakery products may find it harder to pass on higher raw material costs to consumers, said Zeelandia MD Keith Cunningham. He said forward indications were that we are in for rapid inflation – “only the tip of which we are seeing currently”. “If you are making quality products, then the consumer will pay; if not, then watch out,” he added.

Macphie, group commercial director, Ronnie Leggett said: “Commodity cost inflation and volatility are significant commercial issues facing the baking industry. While wheat has gained most column inches, other commodities – for example, butter, cocoa and edible oils – are also exhibiting major hikes.”

According to the latest data from Mintec, vegetable oil prices were up by around 15-20% since the start of July. The price of cocoa beans was up 11% yoy and the price of cocoa powder (futures) in London has increased by nearly 500% since the start of 2007. White sugar (futures) was up 3.11% yoy.

Cereform sales and marketing director Andrew Pollard said one of the key concerns was the increased price of rapeseed oil, used in ingredients such as shortenings and improvers. “Chinese manufacturers supplying products such as skimmed milk powder to European markets have now ceased doing so, as they have increased domestic demand, which is in turn pushing the European prices up.”

Pollard said discussions were now taking place about potential price increases. “There is pressure on prices throughout the whole of the chain… so the baker will have to increase prices.” 

The Association of Bakery Ingredient Manufacturers (ABIM) echoed the view that rise in the cost of commodities has not yet reached its peak.

“ABIM members do not believe that this is a short term phenomenon, and it has reached a point where it is not possible to absorb further increases,” said a spokesperson for the association.

Although its members have been working with customers to reduce costs through reformulation and cooperating on initiatives to maximise efficiencies, she said "there are not enough cost minimisation opportunities to balance the major cost increases that the industry is facing”.

Paul Morrow, MD of Bakels International, said dairy-related products would be affected by increases in feed costs, while potato yields had also been hit by the dry summer, which could translate to 10% increases in potato starch prices.

He said the impact of various commodity price rises would be felt from the fourth quarter, but added: “We’ve been here before and I think it was worse three years ago. Bakers need to look at their business carefully to make sure they’ve got all costs taken out, but because all the rises can’t be absorbed, they will need to price carefully. The end consumer might have cause for concern but perhaps they may be more worried about other issues such as the rise in VAT in January.”

Kam Patel, who owns Westcott Bakery in Surrey, said: “The price of a 16kg bag of flour is going up by £1.40 in September. I’m still working out how much to put my prices up by… it will probably be between 10-12p a loaf.”

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