Bakeries’ profit margins are coming under pressure due to the skyrocketing price of ingredients and owners have appealed to the government to approve a price hike, which would mean a further rise in the cost of basic goods for consumers.
Bakers are keen to have the second price hike in less than five months for bread and baked goods approved by the Ministry of Economy soon because the international price for wheat has seen dramatic spikes.
“Wheat price increases have been unprecedented and all bakeries, big and small, have been hit. Wheat is a major ingredient used to make bread and other bakery products,” said Jaleel Mohammed, marketing manager, Al Jadeed Bakery.
“The price of a 50kg packet of wheat, which was Dh50 in 2006, is about Dh110 now. In November 2007 bakeries increased prices by 20 per cent with the approval of the Ministry of Economy.
“But prices have been going up further and due to the variation in the exchange rate, the price of imported butter and diary products have also increased considerably,” Mohammed said .
Three companies – Modern Bakery, Al Jadeed Bakery and Golden Loaf – share 75 per cent of the UAE bakery market, according to Mohammed, and the remaining 25 per cent is shared by around 100 smaller firms.
An official from Modern Bakery, speaking on condition of anonymity, said: “All the bakeries are being affected by the increase in wheat price. We have approached the government several times demanding price increases [for our products], but the officials are not keen to allow another price increase. Food price increases will add to inflation, which is already high.”
Bakers have complained they are trapped between the rising cost of all types of inputs and the government-imposed cap on the prices they are allowed to charge.
Biju Nair, operations manager of Bakemart, said the price of almost all raw materials used by the bakeries has gone up from 50 to 100 per cent. “The price of wheat flour, butter and milk powder has gone up by 100 per cent in the last six to nine months. Wheat is going up due to a shortage and the price of butter, milk powder and other diary products has gone up due to a strong euro.
These dairy products are sourced mainly from Europe and the euro has appreciated by almost 40 per cent of late.”
Costly inputs range from direct ingredients to fuel, electricity and water needed to run the bakeries. For example, Al Jadeed Bakery, which operates around 100 delivery vehicles, has said it is being hit hard by increased petrol prices. The price of cooking gas, another major cost for bakeries, has gone up from Dh140 for a 44kg cylinder to Dh190.
The country’s egg shortage has also posed a problem for bakeries that use them in their cake products. Following bird flu fears, Indian and Saudi eggs were banned in the UAE, almost quadrupling the price for eggs. The price of an industrial carton of eggs (360 pieces) that was Dh60 before the ban, is now Dh220.
Profit-hit bakeries seek price rise