The boss of Allied Bakeries’ owner rules out price rises for now but says it is possible “if the situation doesn’t improve”
The maker of Kingsmill bread could slap a surcharge on the cost of a loaf if the Iran war drags on. An energy shock caused by the ongoing conflict risks driving up costs for energy hungry businesses and those that rely on fertiliser, including food manufacturers.
George Weston, chief executive of Associated British Foods, which owns Allied Bakeries, said it had yet to be impacted because of “hedging”, which guards against cost shocks such as those happening now.
But he warned the benefit would begin to reduce from the summer when it comes to fertiliser, and on energy from the end of this year, assuming oil prices remain sky-high.
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Mr Weston said ABF’s bakery business in Australia – where it makes Tip Top loaves – does not have the same hedging protection when it comes to energy. “In Australia, we don’t have the hedging benefit,” he said. “We have put on a fuel surcharge to bread.”
Mr Weston stressed there were no plans to do the same here, yet, but price rises were possible “if the situation doesn’t improve.” He went on: “We would ask the retailer to pay for it, and they would decide what to do with that cost.”
Farmers say the cost, and availability, of fertiliser has been heavily impacted by the Iran’s blockade of the Strait of Hormuz. If the situation continues, it could drive up the cost of crops planted in the autumn.
Sources say any pass through to Allied Bakeries – which makes Kingsmill, Allinson’s and Sunblest bread – would not be until next year.
Fuel surcharges are usually associated with airlines, with a number of carriers having already applied them to recoup some of the surge in jet fuel prices in the wake of the Iran conflict.
A surcharge is considered different from a normal price rise, as it would cover a specific cost and could be removed when those costs eventually fall.
A number of businesses in Australia has already applied a fuel surcharge, including Sydney Fish Market which has added an 81 cent levy for every kilogram of seafood bought at auction because trawlers have faced a doubling in costs.
Meanwhile, a hospitality trade body down under has encouraged restaurants and cafes to add on a 5% surcharge.
ABF also owns budget fashion giant Primark, although confirmed plans to float the chain as a standalone FTSE 100 business. Mr Weston insisted: “We are managing the impacts of the Middle East conflict. However, there is a risk to Primark sales if the conflict persists and consumer spending deteriorates.”
Industry body the Food and Drink Federation warned the cost spikes caused by the Middle East conflict could take seven to 12 months to feed through to shop shelves.
It has already warned a jump in oil and other costs could see food price inflation surge to 9% or 10% by Christmas, even if the war ended now.
The FDF is calling on urgent government help for energy intensive sector businesses to offset surging costs and to prevent a wave of possible business failures.
Karen Betts, FDF chief executive, said: “Energy is embedded in every part of the food system, from agriculture through to the energy used in greenhouses, manufacturers to make food and chill it, and to move it onto supermarkets and the energy they use. Until now, we are just seeing the beginning of that spike.”
She urged the government to “act quickly” by lifting looming regulatory costs, “because if we don’t, as inflation starts to build then it’s going to be too late. It will start to work its way through the system and into prices. The government is listening but it is the sense of urgency that bothers me.”
