Big bakers push supermarkets to add 10p to price of a loaf in face of world wheat shortage

Bread prices could rise by 10% as the big bakery groups try to pass on the rising price of wheat to consumers.

Associated British Foods, which makes Kingsmill bread, said it was in talks to raise the price of a loaf with supermarkets and hopes to agree an increase, which is likely to take effect within a couple of months. The baker refused to say how big a price rise it is asking the big grocers to approve, but it is likely to be around 10p on a standard white loaf. The increase would push the cost of a loaf to nearly £1.20, from £1.09. Just before Christmas the price was 96p.

The big supermarkets have warned suppliers that they will do their best to hold down prices for their shoppers. Andy Bond, chief executive of Asda, said he intended to be "very assertive" with suppliers.

ABF said it was "in the early stages of talking to retailers" but the super-markets knew the price pressures they were facing. George Weston, chief executive, said negotiations with the big supermarkets "are never easy". "They know their supplier base has to earn a living".

The warning on bread prices from ABF comes just a few weeks after rival baker Premier Foods said that further rises in the price of its Hovis brand were "inevitable".

Wheat prices have been rising rapidly because of increased demand from developing economies and because of pressure on farmers to switch to biofuel crops. There is a global shortage of hard red spring wheat, a variety used in bread that has doubled in price since last September. Supply has been damaged by two years of drought in Australia, a frozen American midwest and poor harvests in Ukraine.

Last month Robert Schofield, Premier Foods boss, said: "Unless people plant more wheat, I cannot see these prices coming down." ABF, which was publishing first-half profits, said: "Volatility is now an established feature of cereal markets".

The group, which includes Silver Spoon sugar, Twinings tea, bio-ethanol production and the Primark cheap fashion chain, showed profits for the six months to March up 5% at £282m. The increase was achieved despite a sharp fall in profits - £87m to £58m - from the sugar business due to changes in the EU sugar quota regime and poor weather.

A bioethanol plant, at Wissington, Norfolk, is now producing ethanol from sugar beet which can be added to petrol to meet the new 2.5% biofuel requirement. None of the oil majors have yet signed up as customers, preferring to meet targets using biodiesel, but ABF said it was selling to a number of independents, including Tesco and J Sainsbury.

The grocery business recorded an increase in profits from £64m to £88m despite the increased wheat price.

ABF described the bakery business as "really difficult", but said Twinings and Ovaltine had turned in an "excellent" performance. Primark continues to outperform its higher priced rivals. While Next and Marks & Spencer are braced for a tough year as shoppers rein back spending, Weston said Primark had "historically done well in tough times". He predicted it would continue to prosper by taking market share off its rivals if it has the right clothing ranges and good summer weather.

The chain, which has 131 UK stores, has 10% of the British clothing market by volume, but 4% by value because of its low prices.

Analysts, however, pointed to a decline in Primark operating margins from 12.6% to 12.3% - the third consecutive one -and decided the shares looked expensive. They closed at 875p, down 15p.

The numbers

£1.20

The likely new cost of a standard white loaf. Last year it was 96p

2

Years of drought suffered in Australia, which has squeezed wheat supplies