Price of bread could hit record after Russian wheat export ban

The heatwave and drought enveloping Russia has contributed to the soaring price of wheat...

Report from The Daily Telegraph
By Harry Wallop and Ambrose Evans-Pritchard
Published: 7:05PM BST Thursday, 05 August 2010
Price of bread could hit record after Russian wheat export ban

The price of a loaf of bread in Britain could hit a record after Russia imposed a ban on all exports of wheat and other grains.

The unprecedented move, instigated by Vladimir Putin, the prime minister, will see a quarter of the total world's wheat exports withdrawn from the market. It comes as Russia suffers from its worst drought in over a century, which has seen much of its harvest wiped out by wildfires.

Though Britain buys little wheat directly from Russia, most loaves on supermarket shelves contain a large proportion of imported flour. Russia's move sent up prices on the wholesale market to a 30-month high in Paris, where European wheat is traded.

Yesterday, Premier Foods, one of Britain's biggest food companies and the owner of Hovis, said the price of a loaf of bread will have to rise, by possibly as much as 10p.

Robert Schofield, chief executive, said: "The size of rise will force us to put a price increase through in the coming months. The retailers have the final decision on how much of that will be passed on to the public."

According to the Office for National Statistics, the average price of a loaf of sliced bread in Britain is £1.19. It was a mere 65p five years ago but shot up during the crisis in food prices during 2007 to 2008, when a similar set of poor harvests, this time in Australia, caused the global price to rise. This in turn set off a series of inflationary spikes in commodities.

A loaf hit a record of £1.27 in the summer of 2008.

If Premier's warning that 10p will be added on, the price of a loaf, one of the very few staples that families buy every day of the week, would hit a record of £1.29.

Martin Deboo, a food analyst from Investec, said: "Experience of 2008's round of inflation would suggest cost side increases from wheat do get passed on to the consumer eventually."

Mintec, a company that specialises in tracking the price of food, estimates that the cost of wheat makes up about 57 per cent of a loaf of bread, with the baking, packaging and distribution of it accounting for the rest.

Nick Peksa, at Mintec, said: "Ironically the harvests in Britain and Canada have been good this summer, but I fear a lot of these price rises have been fuelled by speculators on the back of the Russian problems.

"The chances are the price of bread will go up."

Mr Putin appears to have acted after meteorological experts issued further drought warnings, raising fears that the ground would still be too hard next month to seed the winter crop.

The loss of two crops would force Russia to withdraw from the global export market altogether for up to two years.

Russian sources said Mr Putin had requested Kazhakstan and Belarus, two other major wheat producers, also banned exports.

Abdolreza Abbassanian, chief grain economist at the United Nations Food and Agriculture Organization, said: "This is maximum: it’s a desperate situation because it has caught everybody off guard."