Wednesday, August 04, 2010

Wheat shortage to bring price rises

British consumers have been warned that the price of a loaf of bread could rise significantly following the devastation of wheat crops around the world. The cost of wheat registered the highest monthly increase in 37 years in July as a harsh drought and wildfires destroyed a fifth of Russia's wheat crops. Russia is one of the largest exporters of wheat, a staple crop for millions of the global population. 

The Russian Grain Union said on Monday that it expects exports to decline to 15 million tonnes, down from 21.4 million tonnes in 2009. Although grain prices are rising on world markets, with further gains on Monday, they are growing even faster in Russia. Many farmers have little incentive to export and are holding onto harvested grain in the hopes of higher profits. This was having a knock-on effect to global prices which have risen by around 50% since late June. "Russia has become the price-maker on the market," said Dmitry Rylko, director general of the Institute for Agricultural Market Studies.

Heavy rains in Pakistan, which have displaced millions and killed hundreds, has compounded the problem. Around 15% of the country's wheat crop has been destroyed according to some estimates.

For consumers around the planet it is likely to mean increased prices for essentials such as bread, pasta, biscuits and even beer. The cost of poultry may also be affected as grain is often used in their feed. Hovis group Premier Foods has already said it will have to pass the soaring cost of wheat on to retailers which in turn will leave consumers out of pocket. The average price of a loaf of bread currently costs between £1.30 and £1.40 [$2.07 - $2.23] in the UK and there are fears it may rise by up to 10%.

The London wheat futures were last night at £149.40 [$238.18] per tonne for November 2010, compared with around £105 [$167.40] before droughts, heatwaves and wild fires hit production in Russia, Kazakhstan and Ukraine. Harvest across European Union also appear to be down and some wheat producing countries are looking set to cash in on the hole in the market. George Lee, agriculture fund manager at Eclectica Asset Management in London, said the United States and other exporters, principally Argentina and Australia, are set to be "big gainers"

But is comes at the expense of an already hard hit shopper who has seen food inflation jump significantly. The British Retail Consortium said food prices in July were 2.5% up on 2009 prices, compared to a figure of only 1.7% in June. The BRC blames higher animal feed and wheat costs, as well as rises in the global price of other commodities such as palm oil, cocoa and soya oil [Telegraph / BBC / BBC Video]

tvnewswatch, London, UK

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