Kingsmill Bread Price Warning as Iran War Threatens Energy and Fertiliser Costs
The manufacturer of Kingsmill bread has issued a stark warning that consumers could face price increases on loaves if the ongoing conflict in Iran continues to disrupt global energy and fertiliser markets. George Weston, chief executive of Associated British Foods (ABF), which owns Allied Bakeries, stated that while current hedging strategies have protected the business from immediate cost shocks, this buffer is expected to diminish later this year.
Energy and Fertiliser Pressures Mount
Mr Weston explained that ABF's hedging on oil and fertiliser costs has so far shielded its UK bakery operations, which produce Kingsmill, Allinson's, and Sunblest breads, from price hikes. However, he cautioned that the benefit from hedging on fertiliser will start to reduce from the summer, and on energy from the end of 2026, assuming oil prices remain elevated due to the Middle East turmoil.
"We would ask the retailer to pay for it, and they would decide what to do with that cost," Mr Weston said, emphasising that while no price rises are planned currently, they become a possibility "if the situation doesn't improve." Any pass-through to Allied Bakeries is not expected until next year, according to industry sources.
Australian Operations Already Implementing Surcharges
In contrast to the UK, ABF's bakery business in Australia, where it produces Tip Top loaves, lacks similar hedging protection and has already introduced a fuel surcharge on bread. This move mirrors actions by other Australian businesses, such as the Sydney Fish Market, which imposed an 81-cent levy per kilogram of seafood due to doubled trawler costs, and a hospitality trade body encouraging a 5% surcharge in restaurants and cafes.
Mr Weston highlighted that a surcharge differs from a standard price increase, as it targets specific cost pressures and could be removed if those costs eventually fall. Fuel surcharges have become more common, with several airlines applying them to offset jet fuel price surges linked to the Iran conflict.
Broader Industry Warnings and Government Calls
The Food and Drink Federation (FDF) has raised alarms that cost spikes from the Middle East conflict could take seven to twelve months to filter through to shop shelves. Karen Betts, FDF chief executive, warned that food price inflation could surge to 9% or 10% by Christmas, even if the war ended immediately, due to embedded energy costs across the food system.
"Energy is embedded in every part of the food system, from agriculture through to the energy used in greenhouses, manufacturers to make food and chill it, and to move it onto supermarkets and the energy they use," Ms Betts stated. She urged the government to "act quickly" by reducing regulatory burdens to prevent a wave of business failures in energy-intensive sectors, expressing concern over the lack of urgency in response.
Impact on Fertiliser and Agriculture
Farmers report that the cost and availability of fertiliser have been severely impacted by Iran's blockade of the Strait of Hormuz, a critical shipping route. If this situation persists, it could drive up the cost of crops planted in the autumn, further exacerbating food supply chain pressures.
Primark Sales at Risk
ABF, which also owns the budget fashion giant Primark, confirmed plans to float the chain as a standalone FTSE 100 business. Mr Weston noted that while the company is managing the impacts of the Middle East conflict, there is a risk to Primark sales if the conflict drags on and consumer spending deteriorates, highlighting the broader economic ramifications of prolonged instability.
The industry's collective call underscores the urgent need for government intervention to mitigate rising costs and protect consumers from escalating food prices as global tensions continue to influence market dynamics.
