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Last Updated: Friday, 20 July 2007, 21:00 GMT 22:00 UK
Food prices on the rise and rise
By Nick Higham
BBC News correspondent

As more doomsday predictions emerge about the price of staple foods, the BBC has taken an in-depth look at what is pushing up the costs.

Loaf of bread
Wheat prices across Europe hit their highest levels in more than a decade last month

They've been baking bread at Bonnett's in Somersham, on the edge of the Cambridgeshire Fens, since 1803 at least.

The shop, with its venerable green and gold Hovis sign above the entrance, is packed with a mouth-watering selection of bread and buns, cakes and cold meats.

The bakehouse at the back supplies a small chain of seven other Bonnett's shops in the towns and villages round about.

But life for independent bakers has been getting tougher.

There's the competition from the supermarkets. And then there's the rising cost of raw materials.

In the past year the price of a loaf of bread in UK shops has risen 15 per cent. Soon it'll go up again.

'Frightening'

In common with the rest of Britain's flour millers, David Bonnett's suppliers have told him to expect increases of around 40 a tonne or more in the price they charge.

That in turn will mean another four or five pence on the price he charges his customers for a large loaf. He calls the rises "frightening".

Bread isn't the only staple food whose price has been rising rapidly.

According to the research company TNS Worldpanel, in the 12 months to June, the supermarket price of milk has gone up 11 per cent, eggs have gone up almost 18 per cent, butter has gone up five per cent and meat six per cent, all well above the rate of inflation.

Some foods haven't risen in price: cheese, according to TNS Worldpanel, has actually fallen slightly.

But that's about to change: the wholesale price of cheesemakers' principal ingredient, milk, has been rising rapidly.

The cost of powdered milk has more than doubled. It won't be long before that feeds through to the consumer in higher prices not only for cheese - around 45 pence more per kilo by Christmas - but for other foods, like pizza, with high cheese content.

Differing fortunes

So what's going on? The answer seems to be a combination of three things.

Eggs
The price of eggs has also increased

One is the rising cost of oil, which affects everyone, including farmers and food companies, shops and supermarkets.

A second is increasing demand for western foodstuffs from developing countries like China.

A few miles away from David Bonnett's shop, George Munns farms 200 hectares on the outskirts of Chatteris.

What's bad news for the baker is good news for him.

In two weeks time he'll start harvesting his winter wheat, destined to be made into animal feed. He's already sold it for 112 a tonne, a huge increase on the 70 a tonne he got last year.

For the first time in several years he'll be making a profit on the crop, because it costs him around 72 a tonne to produce.

His good fortune is partly a consequence of others' misfortune: drought in Australia has resulted in several years of poor harvests there.

Booming biofuels

But that increase in demand in China has a lot to do with it as well: more affluent Chinese consumers eat more meat; China needs to import more cereals to feed its mushrooming population of pigs and poultry.

The third reason is biofuels.

Forty minutes' drive north from Chatteris, across the county border at Wissington in Norfolk, is one of Britain's biggest sugar beet factories.

The owners, British Sugar, are currently building an extension to turn surplus sugar beet into 70 million litres a year of ethanol; it'll be blended with conventional petrol to run cars.

Tractor on sugar beet field
Ethanol is made from crops such as sugar beet

Several other biofuel plants are planned in the UK but biofuels are already big business in the United States, where bioethanol is seen as a greener and more sustainable alternative to traditional petrol.

The downside is that land which until recently was growing crops for food is now growing crops for fuel.

The United Nations says a third of the total US maize crop went for ethanol last year.

The International Monetary Fund say there's no question that demand for biofuels is driving up food prices - and that it will go on doing so - though in the UK the National Farmers Union disputes that.

But the NFU has said the era of cheap food was over - something it welcomes, because it says farm-gate prices have lagged behind rising production costs and the cost of living for far too long.

As for the rest of us, it's clear we're just going to have to get used to paying more for our food.


VIDEO AND AUDIO NEWS
One baker's view on the increases



SEE ALSO
Milk costs hit Stilton producers
18 Jul 07 |  Nottinghamshire
Biofuels 'to push farm prices up'
04 Jul 07 |  Business
Australia wheat crop 'to double'
19 Jun 07 |  Asia-Pacific
Factory prices threaten inflation
08 May 06 |  Business

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