Bakery margins squeezed tighter as wheat costs rise

Rising wheat prices are heaping further pressure on UK bread margins.

Allied Bakeries is discussing higher bread prices with retailers, with parent company Associated British Foods (ABF) reporting in its full-year results that the business sustained a loss in the year ending 16 September. Other manufacturers will also be hoping to raise prices, according to industry insiders.

The Allied loss – stated by industry observers to be in the ‘low tens of millions’ – was despite the business relaunching its Kingsmill brand with new products and packaging at the start of the year.

Like many bakers, Allied Bakeries has come under intense pressure from low retail pricing and a highly competitive bread market. It has also been hit by rising wheat costs, driven by factors including the devaluation of sterling.

“A difficult trading environment in the UK bread market led to a decline in revenues at Allied Bakeries and it sustained a loss,” stated ABF. “We are continuing to invest in our brands and are working closely with our customers to improve the profitability of our bakery business.”

The fall in the value of the pound following the Brexit vote last summer has meant producers are paying more for imported ingredients, including wheat.

A weak wheat crop in Canada because of dry weather has compounded the situation. The price of Canadian wheat was up 7.9% year on year last month, according to commodity analysts Mintec.

As reported by British Baker last month, millers have been affected by a drop in the proportion of wheat samples meeting full bread specification. The Agriculture & Horticulture Development Board (AHDB) has stated that only 24% of wheat samples were hitting full spec. This is down from 31% in data published the previous month, and is in stark contrast to earlier reports.

The decline is contributing to an increase in the price of UK milling wheat, which was up more than 15% year on year last month (Mintec).

“Going forward, wheat pricing is going to be an issue, with supplies likely to be a bit tight on good-quality bread-making wheat,” said Gordon Polson, director of the Federation of Bakers. “We try to use a lot of UK wheat, but if you are also importing wheat, the exchange rate is going to work against you.”

The key reason for the decline in UK wheat meeting spec has been low Hagberg Falling Numbers (HFN) following wet weather during the harvest. The average HFN for Nabim Group 1 samples is 254 seconds, 62 seconds down on last year’s final result. While it is relatively easy to compensate for other weaknesses in a crop, such as low protein and specific weight, it is more difficult to compensate for low HFN.

Want more stories like this in your inbox?

Sign up for our FREE email newsletter

Keywords:

My Account

Spotlight

Most read

Social