The company behind Kingsmill bread may increase the price of a loaf if the prolonged Iran war continues. The ongoing conflict has triggered an energy shock, posing a threat of rising costs for energy-dependent businesses and those relying on fertilizers, such as food producers.
George Weston, the CEO of Associated British Foods, which owns Allied Bakeries, stated that their operations have not yet been affected due to protective measures like hedging. However, he cautioned that the benefits of hedging would diminish starting from the summer for fertilizers and by the end of this year for energy, assuming that oil prices remain high.
In Australia, where ABF operates its bakery business producing Tip Top loaves, there is no hedging protection for energy costs. Weston mentioned, “In Australia, we don’t have the hedging benefit,” and added that they have implemented a fuel surcharge on bread.
While there are no immediate plans to implement a similar surcharge in the UK, Weston noted that price increases could be on the horizon if the situation does not improve. He highlighted that any cost adjustments would be negotiated with retailers, who would then decide how to manage the additional expense.
Farmers have reported significant impacts on fertilizer costs and availability due to Iran’s blockade of the Strait of Hormuz. This ongoing situation could lead to higher costs for crops planted in the upcoming autumn season.
It is projected that any cost pass-through to Allied Bakeries, known for producing Kingsmill, Allinson’s, and Sunblest bread, would likely occur next year.
Fuel surcharges, commonly associated with airlines, are being applied by various businesses in Australia to offset the surge in fuel prices, including the Sydney Fish Market and hospitality establishments.
ABF, the owner of Primark, confirmed plans to make the fashion chain a standalone FTSE 100 business. Weston emphasized the need to manage the impacts of the Middle East conflict to safeguard Primark sales in case consumer spending declines.
The Food and Drink Federation has cautioned that cost escalations resulting from the Middle East conflict may take several months to affect retail shelves. They anticipate a potential surge in food price inflation to 9% or 10% by Christmas, even if the conflict were to end soon.
The FDF is advocating for government intervention to support energy-intensive businesses in coping with rising costs and avoiding a wave of potential business closures. Karen Betts, FDF chief executive, stressed the critical role of energy across the food system and urged prompt regulatory actions to prevent inflation from impacting prices.
The urgency for government action was highlighted to prevent the delayed repercussions of rising costs from impacting consumers. Betts emphasized the need for swift regulatory adjustments to mitigate the looming inflationary pressures.