Reporting in Can you afford to ignore raw material price rises?

08 October, 2010
Page 10 

Nick Harris

Managing director, BFP Wholesale

Has a period of raw material price stability come to an end? It would certainly appear so if the pages of this magazine are to be believed. And all of the recent comments regarding the Eastern Europe harvests on television and in the press are suggesting the same.

Over the past few weeks, all types of suppliers, whether they be with commodity-type products or added-value ingredients, are presenting their case for increases based on commodities, energy, packaging and so on. There is clear evidence that certain types of raw materials are in short supply on the global markets and this pressure inevitably filters through to Europe, regardless of local stocks. What is a comparatively new phenomenon is the apparent hunger of the speculators, led by the hedge funds, to hold commodity positions and to bet against market movements.

This speculation results in extraordinary spikes and troughs in prices, depending on which way the bet is taken, and can be counter-intuitive against the actual availability of the products. However, prices are definitely increasing on core bakery ingredients, whether that be flour, fats, oils or sugar and, regardless of the UK's own supply position, the global trend will prevail.

According to the latest government figures, food prices at retail level started to increase in August. This trend is likely to continue for the remainder of this year and presents another challenge to all of us. How long can you hold off an increase in your prices? The bakery sector is incredibly competitive and the fear of being first to move can be used as a reason not to increase prices this week. Another excuse can be the possibility of gaining market share at the expense of a competitor who has already increased their prices.

But the strongest argument of all and the real question to ask is, 'What is the cost of not increasing your prices, what will be the consequences for your business and all your stakeholders?' The next few weeks are among the busiest for bakeries, so can you really afford to try and absorb key raw material increases across all your volume?





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