Rising price of wheat signals end of low-cost food, warns Premier chief

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The Independent Online

Premier Foods, whose products range from Mr Kipling cakes and Quorn to Branston Pickle, warned yesterday that the days of super-low-cost food are coming to an end as global demand for wheat rises.

The UK's biggest food producer also announced an increase in the price of Hovis bread, and said one major retailer had pushed up the price of a white loaf by 8p, taking it to more than £1.

Wheat prices have almost doubled in the past 12 months, and the buying of wheat futures contracts has been fuelled by dry weather in Australia and fears that Russia may restrict exports. Premier's chief executive, Robert Schofield, said food inflation is not just restricted to wheat. The price of animal feed, milk products, glucose and by-products are rising, he said.

"It is not a blip," Mr Schofield said. "We are seeing some forces out there that are not going to go away in three months. The overall global demand for food products is up, fuelled by demand coming out of Asia." Mr Schofield added that the use of land to grow environmentally friendly fuels is partly to blame for rising prices. "In effect, we're going to see an environmental tax on food," he said. "A lot of grain is being used for fuel."

Thirty years ago, the average family would spend 30 per cent of its income on food, but this has fallen to just 10 per cent, he added. "The food price inflation we are seeing now is not sporadic," he added. Mr Schofield said Premier may be forced to lift prices further should wheat prices continue to spiral.

The comments come a month after Deloitte consultancy warned that the price of meat will have to rise to protect the health of the livestock industry. The National Farmers' Union said many farmers were reducing their stock or considering quitting livestock farming as they are unable to survive on the current prices they get for meat.

Yesterday, Premier said the integration of Campbell's soups, which it snapped up last summer, has completed while the integration of the Mr Kipling maker, RHM, which the company bought for £1.2bn in March, "continues at pace". Premier hopes to deliver £113m in cost savings from the two acquisitions.

The deals helped the company post a 112 per cent rise in trading profits to £96.8m in the six months to 30 June but, excluding the new businesses, pre-tax profits fell 49.6 per cent to £13.9m. Underlying profit at the companies' bread business halved to £19m.

The acquisition spree has led to a rise in Premier Food's debt, which has weighed on the shares and seen them underperform rival food producers by about 22 per cent this year.

Yesterday shares in Premier Foods rose 10.5p to 251p as analysts welcomed news of a positive start to second-half trading and signs that integration was back on track.

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