Northern Foods feels commodity squeeze

By Charlotte Eyre

- Last updated on GMT

Related tags Chief executive officer Northern foods

Global food manufacturer Northern Foods this week warned that it
faces price rises of up to ten per cent because of steep commodity
price increases in the UK.

"In line with industry trends, commodity prices have continued to accelerate during the last three months, especially in cereals, dairy, cocoa and fats, reflecting difficult global market conditions and constrained UK supply,"​ the company said. Like many large food companies, Northern Foods is coming under increasing pressure to keep making profits and not pass on the cost to customers, as the prices of raw materials continue to grow. In a trading update for the 26 weeks ended 29 September, the company expects material costs to be four to five per cent higher than last year, "representing an annualised impact of approximately eight to ten per cent." ​However, the company still experienced growth in many of its divisions, said Stefan Barden, chief executive officer. "We are operating in a challenging trading environment, but the achievements of the past twelve months have positioned us well to deal with these conditions,"​ he said. Bakery sales, including Fox biscuits, grew 2.8 per cent during the first half year, attributed in part to higher sales of own label brands and more money being spent of promotion. Building on this success, the company will launch a new premium brand of biscuits this Christmas. Sales of ready meals, sandwiches and salads were also good, the company said, despite poor summer weather in the UK. In the frozen division, on the other hand, revenues declined 2.6 per cent, despite a "robust" performance of the Goodfella's brand. Commodity prices have been rising sharply over recent years due to a number of factors, including Drought in Australia, adverse weather in Europe and foot and mouth in the UK. The International Grains Council is predicting a seven million tonne shortfall in the global wheat supply to meet demand in 2007-8, as it downgraded its harvest estimates to 607m tonnes. This in turn affects the price of meat, as farmers must then pay more for animal feed. Feed wheat costs are 40 per cent higher than this time last year and almost 70 per cent higher than 2005, the British Poultry Council warned last month. Couple these unforeseen events on the supply side with the increased demand from China and the squeeze is on operating budgets, and perhaps even production output, as is the situation currently facing many manufacturers.

Related topics Commodities

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