A possible fuel surcharge may soon be added to the popular bread brand Kingsmill due to impacts from the Iran war, as reported by the Mirror. Allied Bakeries, the maker of Kingsmill, is currently in preliminary talks with various retailers regarding the implementation of this levy related to the conflict.
The anticipated surcharge, estimated to be under 5p per loaf, aims to offset the increased energy expenses for bread production and transportation to stores. Retailers will have the discretion to decide whether to pass this additional cost on to consumers. Presently, a standard 800g loaf of Kingsmill 50/50 medium soft white bread is priced at £1.05.
The ongoing conflict-induced energy crisis poses a risk of escalating costs for energy-intensive industries and fertilizer-dependent sectors like food manufacturing. George Weston, the CEO of Associated British Foods, the parent company of Allied Bakeries, mentioned that their energy costs have not been significantly impacted yet due to hedging practices. However, if oil prices remain elevated, the situation could change. Additionally, Allied Bakeries produces other bread brands such as Allinson’s and Sunblest.
In contrast to the UK operations, ABF’s bakery business in Australia, where it produces Tip Top bread, lacks similar hedging protection for energy costs. Weston highlighted the necessity of adding a fuel surcharge to bread in Australia due to this lack of hedging.
Farmers have noted a substantial impact on the cost and availability of fertilizers due to Iran’s blockade of the Strait of Hormuz. This situation could potentially lead to increased crop costs in the upcoming autumn planting season.
Fuel surcharges, typically associated with airlines, have been increasingly applied by various businesses to recover the surge in fuel prices following the Iran conflict. These surcharges are distinct from regular price increases as they specifically cover certain costs and can be eliminated once those expenses decrease.
Several Australian businesses have already implemented fuel surcharges, with examples like Sydney Fish Market imposing an 81 cent levy per kilogram of seafood due to soaring costs for trawlers. Furthermore, a hospitality trade body in Australia has advised restaurants and cafes to consider a 5% surcharge.
Although ABF also owns the fashion retailer Primark, plans have been confirmed to separate and list Primark as a standalone FTSE 100 entity. Weston expressed concerns about potential impacts on Primark sales if the conflict persists and consumer spending weakens.
The Food and Drink Federation cautioned that the cost escalations resulting from the Middle East conflict could take several months to manifest on retail shelves. They highlighted the possibility of food price inflation reaching 9% to 10% by Christmas, even if the conflict were to end promptly.
The FDF is advocating for immediate government support for energy-intensive sectors to counterbalance escalating costs and prevent potential business closures. Karen Betts, the FDF chief executive, emphasized the critical role of energy across the food supply chain and urged prompt action from the government to alleviate regulatory burdens before inflationary pressures intensify.
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