Bread and Flour (Prices) (Hansard, 1 February 1968)

§ Mr. Peart

Over the past weeks I have received from leading milling and baking firms notifications under the "early warning" system of proposed increases in the price of flour and bread.

The increases in the price of flour were proposed mainly on account of the effect of devaluation on the cost of imported wheat. My right hon. Friend the Secretary of State for Economic Affairs and I therefore asked the National Board for Prices and Incomes to examine the increases attributable to increased costs due to devaluation. The N.B.P.I., whose 407W report is published today, finds that, over the industry as a whole, the cost of the wheat in bakers' flour has increased by 8s. 3d. per sack, and that in Springs flour by 12s. 1d. per sack.

Against this background, I have considered the notifications by individual firms of proposed increased prices of flour. I have taken into account the actual cost to each firm of the higher grain prices, other increased costs (of which increased wages and salaries are by far the biggest item) falling within the criteria for price increases set out in Cmnd. 3235, and also, in respect of the latter, each firm's capacity for absorbing cost increases. I have told the firms which have proposed price increases varying between 8s. and 10s. a sack for bakers' flour, and between 12s. and 12s. 6d. a sack for Springs flour, that their proposals are consistent with the Government's prices and incomes policy. I have told those which have proposed larger increases that they are not regarded as justified.

An increase of 8s. to 10s. a sack in the price of flour adds about ½d. to the cost of producing a large loaf. In addition, the principal bakers have notified me of proposed price increases on account of a wide range of other increased costs, of which increased wages and salaries, and increases due to devaluation in the price of the other ingredients in bread and of wrapping paper are the biggest items. These proposals have been strictly examined against the criteria for price increases and have been found to justify an increase of a little over½d. a large loaf.

Finally, I have discussed with the plant bakers the recommendation in paragraph 69 of N.B.P.I. Report No. 17 published in June, 1966, that the Government should recognise that the ability of bakers to contain costs in future depended on a return to new investment sufficient to encourage the trend to larger and more automatic bakeries. The N.B.P.I., at my request in agreement with the bakers, subsequently quantified this recommendation. The N.B.P.I. advised that the return to new investment in this industry should be about the same as the average for manufacturing industry as a whole, and that an increase of½d. a large loaf would bring a rate of return of this order.

408W

I have discussed with each of the four leading plant bakers, which together account for two-thirds of bread production the steps they have been taking to improve the efficiency of production and distribution. I have also discussed with them their plans for capital expenditure on modernisation; and have received assurances that the proceeds of ½d. increase for this purpose in the price of a loaf would be devoted to plant modernisation.

I have, therefore, told the baking firms which have notified me of proposed price increases that, to take account of the effects of devaluation, of the other costs which they have incurred, and of the need to improve the rate of return on capital in plant baking to encourage the provision of the resources necessary for modernisation, I would consider increases of 1½d. a large loaf and 1d. a small loaf to be consistent with the Government's prices and incomes policy. I have, however, made it clear to those who proposed larger increases that this is the maximum justifiable.