Rising wheat costs force bakers onto the streets

By Chris Jones

- Last updated on GMT

Related tags: Wheat, Biofuel

The surge in global wheat prices - and the subsequent increase in
the price of baked goods - has prompted US bakers to take radical
action.

On March 12, the American Bakers Association (ABA) will lobby the new US Agriculture Secretary, Ed Schafer, along with senior White House officials, to ask for support from the lawmakers. The visit of the so-called 'Band of Bakers' to Capitol Hill has been prompted by what the ABA called "critically low reserves" of wheat. "Extraordinary times call for extraordinary measures. With the critically low reserves and severe conditions in the wheat markets, the ABA is calling on all bakers to come to Washington and demand action by USDA and Congress,"​ said ABA president and CEO Robb MacKie. "ABA has repeatedly urged the White House, USDA and Congress to provide meaningful relief to alleviate the growing wheat crisis; unfortunately those calls have gone unheeded." "Now is the time for all bakers, from all organizations, to join ABA in coming to Washington to deliver this important message personally." ​ Wheat prices have been growing steadily over the last year, in some cases running at up to five times the level seen in early 2007. Poor harvests - and speculation by hedge funds - have been blamed for the increases, which have had to be passed on to consumers, sometimes with difficulty. Last month, Panera Bakeries predicted that the commodity squeeze could continue in 2008, with a bushel of wheat rising from $5.80 to $14.00. As a result, the company said, dough prices would be at least 11 per cent higher to cover the cost, while finished product prices - those paid by consumers - would be at least five per cent higher. Panera is large enough to buy much of its wheat supplies in bulk in advance, at a fixed price, and is thus protected partially from further significant price increases. But smaller bakers do not have that luxury - and they are also less able to cover the rising costs without passing them on to their customers. Rising prices are also being blamed on US government proposals to increase biofuel production as part of its attempts to tackle climate change. Although wheat can be used as a source material for ethanol, and is in many European biofuel plants, its use is not particularly widespread in the US - where maize is by far the most popular source crop. But the recent US Energy Act, which calls for higher ethanol production targets in coming years, is likely to increase pressure on US producers to grow more corn - in turn leading to lower wheat harvests and higher prices. Indeed, biofuels have already become a victim of their own success: giant agribusiness Cargill last month said it had been forced to scrap plans for a $200m ethanol plant in Kansas because demand for biofuel crops had pushed up prices too high. The higher wheat prices have had a particularly hard impact on bakers - whose margins are notoriously weak - because they have come just as the industry was starting to recover from the downturn caused by the low-carb craze. The higher prices are expected to ease by July, when the new crop of winter wheat is harvested, but the fear among many smaller bakers is that by then it could be too late.

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