CEO of the Federation Gordon Polson has written to the Rt Hon George Eustice MP, Secretary of State for Environment, Food and Rural Affairs, calling for action on the issues facing UK bakery businesses.
Energy prices have gone through the roof and the uncertainty over raw material supplies is ramping up markedly.
Polson has requested a meeting with the Rt Hon Eustice to explain these challenges in person. The FOB is the trade association representing the largest bakeries in the UK, a sector that brings in £4bn in retail sales, employing around 75,000 people and supplying over 80% of the nation’s daily bread.
Looming bread shortage
In his letter, Polson says his intention is not to be a scaremonger, “but what the baking industry is facing over the next six months, with cost increases and uncertainty, has never been experienced in a generation, if indeed, ever before.”
He warns the raw material and energy shortages could lead to the prospect of a critical bread shortage.
Delivering fresh bread and bakery products daily to retailers and the catering trade requires a 24/7 dedication. If baking ceases for whatever reason, Polson contends supermarket shelves will start showing the impact almost immediately and will be devoid of bread in less than 48 hours.
He is calling for the UK to engage with the EU, the essential source of the UK’s supply of bakery ingredients (bar wheat).
He also says there needs to be flexibility in labelling, as ingredients may become unavailable, even if just for a short period of time.
He supports the call for a Food Security Council to be established, and some recognition of the relentless increase in costs, in particular, energy. Gas prices have increased five-fold from £45 per therm a year ago. A £100 increase in a therm of gas adds 1.5p to 3p to an 800g loaf of bread, depending on the manufacturing scale.
Relentless cost increases will inevitably lead to large bread price increases, putting some bakeries viability into question. The FOB CEO notes bread was subsidised in the 1970s to mitigate cost increases. Perhaps this should again be considered?
And in the event of any diesel rationing, Polson believes bakeries should be given priority.
Polson’s letter adds the UK bakery sector has continued to operate with as much continuity as feasible in an extremely challenging environment following Brexit, COVID and the invasion of Ukraine.
However, the huge cost increases and significant uncertainty of supply could be the final straw.
Domino effect on global supply
While the UK does not rely on Russian or Ukrainian wheat, the loss of supply from these countries is having a huge impact on global supply. This is having a domino effect.
For example, what wheat is available may be diverted (Russian wheat to China), which will cause shortages in the EU. To mitigate this, the EU may then decide to stop its exports, already muted, and the UK may have huge supply chain disruption.
“We estimate that even if the war stopped soon, the disruption to the planted Ukraine wheat, the lack of planting of spring wheat and the Russian sanctions [means] it will take an estimated three years before the harvest cycle returns to normal,” writes Polson to Rt Hon Eustice.
“It is the case that all businesses will not be experiencing the same price increases and uncertainty at the same time, but once the northern hemisphere harvest is gathered, we can be sure of settled high prices across the industry.”
The dire consequences
Looking at the numbers, a £70 per tonne increase in wheat is a £100 per tonne increase in flour, which adds approximately 5p-6p to an 800g loaf of bread.
In his letter, Polson notes from March 2022, bakers are facing six months of forking out £660 a tonne for flour. This is up from £440 a tonne in February, which was up from £370 a tonne late last year.
Polson warns “there is a strong possibility that without mitigation or large finished product price increases, these raw material cost increases could make bakery businesses unviable.
“Ingredient shortages could make bread supply unreliable.
“Before the impact of the recent Ukraine crisis, cost increases added at least 4.5p to the cost of producing an 800g loaf of bread. This has not been recovered by the baking sector. Since then, the costs could have doubled.”
“Our request is that government must acknowledge the challenges and start planning for disruption and consider mitigating factors.
“Some subsidies of energy costs are essential. Historically, there was a subsidy of bread in the 1970s. The situation we face today is conceivably much more severe.
“We also call for maximum flexibility in labelling, allergen labelling excluded, if an ingredient is not avoidable or not in the product, for a seed in a mix seeded loaf.
“FOB members are working very hard with suppliers to do all we can to mitigate the well-publicised cost increases in energy and wheat, but it is inevitable that prices will have to rise.
“Almost as equally concerning, is the challenge of uncertainty over the availability, not just the cost, but the supply of ingredients including wheat, diesel and packaging.”