IBBA: Increase in flour price puts pressure on bread industry

Dublin / IE. (ibba) Unprecedented international increases in wheat and flour prices are placing significant pressure on the bread baking sector, according to new figures published by the Irish Bread Bakers Association (IBBA).

By September of this year, the cost of bread wheat (pre-milled flour) on international commodity markets had already risen year-on-year by 70 percent. This record increase followed a 40 percent year-on-year rise during 2006. In the past six weeks alone, there has been a further 30 percent rise, placing the cost of the commodity at an all time high.

This phenomenal increase in raw material prices, combined with rising energy and labour costs, have placed an almost intolerable burden on Irish bread bakers, which have already rationalised operations to the hilt, the Association stated.

Paul Kelly, Director of Food and Drink Industry Ireland, speaking on behalf of the Irish Bread Bakers Association commented: «The combination of internationally increasing demand and significantly decreased supply have resulted in dramatic rises in the wholesale cost of wheat. Any sector that sees the cost of its main input rise by 70 percent year-on-year will be put under enormous strain».

«The bakery sector is of significant importance to the Irish economy, employing over 4.000 individuals throughout the country. However, the cost of doing business in today´s market is becoming increasingly difficult. We have already seen a number of bakeries close over the past few years because of cost pressures. Considering this recent spate of cost increases, I would not be surprised to see more casualties, as businesses can´t continue to absorb these kinds of cost increases».

Kelly concluded: «We are assured that medium term responses to increase supply are in train. The EU has directed all set-aside land to be allocated into production for the first time in many years (potentially increasing cereal production by up to 17 million tons) and the US Department of Agriculture is forecasting a six percent increase in the area planted for wheat next year in the US. However, the effect of these measures will not be felt by the marketplace and the food sector for some time and even then, the improvement will only be marginal» (source).

A number of persistent international trends have contributed to the substantial hike in the market prices paid for wheat. These include:

  • Rapid rises in agricultural input costs such as fertiliser, transportation and fuel costs
  • The dramatic drop in global wheat production, with wheat crop yields falling from 620 million tons in 2006 to 614 million tons in 2007
  • Adverse weather, resulting in poor 2007 harvests in France, Germany and other European countries,
  • Indications from Russia, the world´s fourth-largest wheat exporter, that they may increase taxes on wheat exports for a second time (from ten percent to 30 percent) to help curb domestic food prices
  • Several years of significantly reduced rainfall in Australia saw the 2006 Australian grain crop fall from normal yield levels of 24 million tons to ten million tons. With continuing drought there is still significant uncertainty regarding the yield estimated for the 2007 harvest
  • Rising demand for biofuels in the US, resulting in a significant number of farmers changing production from wheat to maize, further reducing global wheat production
  • Rising demand for wheat in the Far East, augmenting market pressures

Taken together, the factors outlined have seen a reduction in worldwide stocks of wheat to their lowest level since 1976. In July a joint report by the United Nations Food and Agriculture Organisation (FAO) and the Organisation for Economic Co-operation and Development (OECD), forecast food price rises of between 20 to 50 percent over the next decade. The report attributes this rise to the growth in the biofuel industry and growing food demand in emerging economies. Biofuels are expected to consume 30 percent of the US corn crop in 2010 (source).