Greggs raises alarm over wheat price impact

By Jane Byrne

- Last updated on GMT

Related tags Bread Wheat

Leading UK bakery firm Greggs predicts an increase in ingredient cost inflation in the second half of 2010, following the recent hike in wheat prices.

However, despite the “challenging trading environment” ​ahead, the CEO Ken McMeikan that Greggs remains on track “to deliver another year of progress.”

In trading results for the first 26 weeks to 3rd July 2010 released today, the firm said that total sales in the period increased by 2.9 per cent to £321m compared to £321m in 2009 and like-for-like sales rose by 0.7 per cent.

While profit before taxation increased by 12.3 per cent to £18.6m from £16.5m the previous year.

Supply chain investment

“We have delivered a resilient first half performance under challenging conditions … Our accelerated shop opening and refit programmes are progressing as planned, and delivering encouraging early results. We are now set to commence the first phase of our supply chain investment programme,” ​continued McMeikan.

The CEO said as a result of increasing production capacity to support new shop openings, Greggs is budgeting total capital expenditure for the year at £45-50m against the £30.3m spent in 2009. He said that this would be financed from the firm’s strong cash flow.

Commenting that the pressure on the trading environment looks likely to increase in the second half of the year due to market volatility, the CEO said the firm remain focused on managing costs tightly, through investing in its bakeries for greater efficiency and capacity for growth and realising the benefits of a strong, centrally run business.”

Wheat prices

Separately, the European Flour Milling Association said last week that​market speculation is a key reason behind the current wheat price rises.

Laurent Reverdy, the association’s secretary-general said that: “The rise in cereal prices is market speculation, which seems to be fuelled by statements of speculators exaggerating the current uncertainty over harvest prospects in regions hit by adverse weather conditions. This leads toincreased volatilityand affects the whole cereals chain​.”

He said that coordinated EU-wide action is needed urgently to end food price volatility induced by speculators.

The association said it was difficult to gauge the impact of the temporary Russian grain export ban at this stage. But quotations on the EU cereals market have increased since the beginning of July by more than 40 per cent for wheat

And speaking before the export ban the National Association of British & Irish Millers (NABIM) said it was too early to predict what effect the lower Russian harvest would have on the effect on European flour products such as bread and biscuits.

The European wheat harvest is likely to be between 5 -10 per cent below forecast but, at present, there are too many variables, to predict the impact on bread and biscuit prices,”​ said a spokesman.

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