Having given us some good tips on dealing with the rising cost of bread, Myscha asked me to provide a bit of analysis on why bread has become so expensive. Oddly, the reasons behind the rise in the price of bread are almost the opposite of the reasons behind the rise in the price of nonfat dry milk that we talked about a couple of days ago.

The spike in the price of nonfat dry milk is due mainly to it being a globalized commodity. A falling dollar, combined with production shortfalls anywhere in the world, cause nonfat dry milk to flow out of the US to meet rising world-wide demand, resulting in rising prices in the US.

The price of bread, on the other hand, has risen in large measure because it's market is not a global one. The reasons for that are:

  • It's not durable--even if you could keep the loaves from being crushed, it goes stale too quickly.
  • It's not compact--a container full of bread isn't worth enough to make it profitable to ship. It certainly isn't worth enough to pay for the sort of fast shipping that would get it to market while it was still fresh.
  • It's not uniform--ask someone what bread is and you'll get a different answer from someone in the United States than you would in France, and a very different answer from someone in India. Even within the US there are regional differences. Nonfat dry milk, on the other hand, is the same everywhere.

The result of that is that there hasn't been much in the way of cheap imports to hold down the price of bread.

To that is added a general increase in the price of the inputs to bread, especially the price of wheat, but more fundamentally, the price of energy.

An increase in the price of oil makes everything cost more. Everything takes energy to make, and everything takes energy to ship to your local store. Beyond that, there are second-order effects--the strong price of ethanol made corn so profitable that huge amounts of land that might have grown other crops have been used for corn. The result has been a reduction in acres planted in wheat (and many other crops--barley, sorghum, soybeans, etc.), leading to higher wheat prices.

After briefly spiking very high in 2006 (and still being at levels that were high historically when 2007 planting decisions were being made), the price of ethanol has moderated just a bit, and that has led corn prices to back off just a bit. They're still high enough, though (and oil prices are most definitely still high enough), that we're likely to see the same forces stay in place next year, keeping wheat prices--and bread prices--high.

As for what to do about it, I refer you back to Myscha's article.