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As day follows night, an increase in wheat prices has been followed by an announcement by the bakeries of an increase in bread prices excused, of course, by the increase in wheat and flour prices. (450 words)

This might seem rather logical. Almost 85 percent of a loaf of bread, by weight, is flour and hence wheat.

But that is as far as the logic goes. With wheat worth about £110 per tonne, the farmer's take from bread is about 0.9 pence per 100 grams, or about seven pence for an 800-gram loaf. This represents about six percent of the retail price of the lowest cost economy brand loaf, down to not much more than one percent for a top of the line national brand and less for other bakery products.

Wheat prices have increased by at most £30 per tonne since the last increase in general bread prices were reported in late September, also, of course, attributed to higher wheat prices. This increase represents up to two percent of the lowest retail priced loaves and perhaps twice that for the wholesale price, but only a fraction of one percent for most bakery products. In absolute terms it amounts to about two pence per loaf. Bakers are reported to be considering an increase of eight pence.

One might conclude from this that the bakers have little idea about their costs. More probably, however, they may regard farmers as a soft political target to blame, an attitude they seem to share with Her Brittanic Majesty's government.

Interestingly the bakeries claim, possibly with justification, that bread prices have remained almost unchanged since the1980's. Following their logic about increases in wheat prices necessitating the need for increases in bread prices, it would be logical to suggest bread prices be reduced rather than increased. Bread wheat prices were consistently above current levels, at times by as much as £40 per tonne, during the 1980's.

All this is not to suggest that the bakers have not been faced with higher component costs in recent years. Milling wheat, kneading dough, baking bread, distributing bulky loaves and finally even toasting the slice are all very demanding of energy, the cost of which has increased significantly.

And interestingly the VAT and excise tax on this energy is a percentage of value. It is, therefore, within the realms of possibility that the increase in government's take exceeds that of the farmer.

But this is almost certainly too subtle a message. The general public, if it knows anything about bread, it is probably that it is made of wheat. And an explanation that higher bread prices are the result of higher wheat prices almost certainly makes sense to most consumers.

The natural extension of this is that farmers are benefiting at the expense of lower income consumers who are most dependent on bread, perhaps the most basic of food stuffs.

December 18, 2003