Why is bread so expensive?

by Philip Brewer on 7 November 2007 17 comments
Photo: Philip Brewer

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.

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Myscha Theriault's picture

as usual! Thanks, Philip. I really was struck hard on my recent trek into civilization. Since we load up on each trip and hang here at the lake for long periods of time some months, when something has spiked it's immediately evident to us, as opposed to noticing it little by little. Even the cheapo long loaves of wheat sandwich bread were around 2 bucks. The good stuff is upwards of 4 bucks. We have higher gas prices here too, which probably doesn't help with the drive up state via the delivery trucks. Thanks for the companion article. It just sort of happened with the milk articles, but I think it's a fun format.

Any ideas for another set?

Philip Brewer's picture

Thanks!  I'll give some thought to other companion pieces.... There must be more we could do.

On an only slightly related note, did you get the email I tried to send yesterday morning, and have you read the blogger forums lately? (I'm suspecting not, because you're very responsive here and silent in those places....)

Myscha Theriault's picture

No, I did not get either. I don't deal much with the forum and I'm in the middle of a major computer malfunction here (sharing my husband's laptop today and probably until next week). But I have a back up way to get to the TLM email if you sent it to the server. It takes longer than outlook express, but I can get to it.

Looking forward to more partner articles. I think it's a great format, since we both have a sort of "look" or template to the pieces. Hmmn . . . how about egg prices?

Guest's picture
Guest

You might want to fact check on the wheat issue. NASS reports more wheat acres planted in 07 than 06.

Philip Brewer's picture

You're right on total wheat acres planted:

  • Corn Planted Acreage Up 19 Percent from 2006
  • Soybean Acreage Down 15 Percent
  • All Wheat Acreage Up 6 Percent

(According to this site: http://www.ethanolmarket.com/corngrains.html)

For other people who want to look into this, the NASS database query page is here: http://www.nass.usda.gov/QuickStats/Create_Federal_All.jsp)

Wheat and corn don't really grow in the same places, whereas soybeans and corn to, so I think the greater point is valid. Where farmers can shift to corn, they have, meaning less of whatever the alternative crop would have been--and that choice affects the choices other farms make with regard to whatever alternatives they have. Since (unlike corn) many of those other grains are partial substitues for wheat, less of them still puts price pressure on wheat.

There's a lot of press out there about acres shifted to corn, which I suppose refer to a lot of specific situations and changes versus what was possible. I link to one in the post, and the topic is addressed in the link above.

There are also a lot of particular situations. For example, there was a drop in spring wheat, which is the one that would be most affected by rising corn prices, as that's the acreage where the decision could be made later.

Guest's picture
Kelja

You're missing the real point. The main reason the price of wheat is up, as well as oil and any other commodity, is the collapse of the dollar. This will continue as the U.S. can not afford its budget and the world is getting wise to that fact. Inflation? Do not believe government figures, those are heavily manipulated. Believe your gut when you visit the grocery store, pay your insurance or pump gas.

And it will get much worse. For you history buffs, think 'Weimar Republic'. It may not (I hope not) be as bad as that in terms of amplitude, but it will be very bad.

By the way, our family uses a breadmachine.

Philip Brewer's picture

Right--wheat, like nonfat dry milk, is a globalized commodity, so a weaker dollar translates directly to higher US prices.

It's never quite that simple in practice, especially for agricultural commodities, because they are not only subject to world-wide supply and demand considerations, but also to price supports, export subsidies, and other government manipulations.

Less globalized products, such as bread, are affected much less (in both directions) by dollar strength or weakness.

One thing that's going to be very interesting over the next year or two is to see how the inflation numbers start to move, now that the downward pressure that globalization has placed on the costs of consumer goods has about played out.

Guest's picture
Guest

Another item for you to look into...because quite honestly, I believe this has a much larger impact on the final price we pay at the grocery store than the price of corn or wheat or any other single raw ingredient.

Every single item in your home has been hauled by a truck at some point in it's life. Most items are hauled by truck many times in it's trek from raw ingredient to our shopping cart.

Those trucks on average use one gallon of fuel for every 4-6 miles they drive.

As fuel prices rise, those shipping costs are passed directly on to us : the consumer. Right now trucking companies are paying huge fuel surcharges to owner operators just to keep those trucks on the road - a company I just looked at pays an additional fuel surcharge of 43 cents for every mile - that's over and above the regular shipping fee - for a 2000 mile trip that adds up to an additional 860 dollars for that single load.

Guest's picture
Kelja

The price of oil certainly has a lot to do with the price of grain. Farming is an energy intensive business. Tractors, harvesters, etc run on diesel and gas. Fertilizer is manufactured from oil. Transport of product to market takes fuel. $100 a barrel oil and up won't be helping the price any!

Philip Brewer's picture

I've been bloging steadily about the price of energy, trying to give people a heads-up that higher energy prices were coming, and suggest tips for preparing. Here are a few pieces you might have missed:

 

Guest's picture
Heresyoftruth

At least it isn't the price of the gluten free loaves. My wheat free ones can be as much as $7 a loaf. I wish I could eat wheat, but celiac disease prevents it.

Philip Brewer's picture

I was diagnosed with celiac when I was four, but apparently mis-diagnosed, as a blood test a few years ago was negative. Anyway, I ate a gluten-free diet for many years, so I know just how expensive, unhandy, and unsatisfactory such a diet is. On the other hand, it does seem to have become a lot easier at least to know whether foods are gluten-free now than it was for most of my life.

Guest's picture
lghbob

Very interesting to see so many reasons for the cost of bread.

First... out local Aldi Store sells white bread for $.59 loaf... and Whole Wheat or Oat Breat for $1.49... Less than 1/2 of the bread in the othr Major Chain Stores.

While all of the reasons stated in the thread are valid to one degree or another, a very major part of the increase is going to the Retail Store (Market).

While Ethanol is having some effect now, as the production facilities mature, there will be less than a 10% reduction of the overall value of the actual grain, as the alcohol (ehtanol) is extracted. The rest of the grain will be able to be used for all of the other byproducts. (subject for another thread).

When you get to transportation costs, as with almost all grocery products, the percentange of the Retail price is extraodinarily minor... no enough to affect the cost by as much as $.02.

The fact that some of the bare bones markets still sell bread at low prices points up (to me) the fact that this is just one of the high markup items that support the large chains.

Incidentally... the same disparity in pricing exists with fruits and vegetables. Our local WalMart sells cucumbers from $.59 to $.89 each while our Aldi's price is $.39 to $.49.... This kind of F & V pricing is across the board with all fresh food.

Just one consumer in a small part of America, but my point is that the profit margin differential is enormous. The grocery prices have risen (rough guess) by more than 20% in the past year. The CPI method of establishing price indexes is so bad that it is virtually worthless. (another subject for discussion).

Just an opinion... :)

Philip Brewer's picture

The thing about energy costs is that they hit at every level. It's not just the delivery to and lighting and heating of the retail outlet, but also the powering of factories, the delivery of raw materials to those factories, and the tilling, fertilizing, and harvesting of the farms. (And to all that I'd also add the fuel used by consumers to drive to and from the grocery store.)

Still, I generally agree--the real impact of higher fuel prices is largely yet to come, as prices move higher.

I've always heard that grocery stores operated on very small margins, so I'm surprised to hear that some are able to offer much lower prices than others. It's something worth looking into.

Myscha Theriault's picture

You know that's really interesting Philip, because I guess I'd always heard the opposite. Now, that's just heard mind you, so I would need to do some research as well. I haven't yet. Perhaps there are various chains that have different percentage rates on markups? Not sure how the data would break down . . . hmmnn . . . . now my gears are definitely turning . . .

Guest's picture
Suanne Klahorst

Even as bread prices continue to increase, bread waste goes into the landfills. Most people think that stale bread goes to poor communities or to "day-old" bread stores to be sold at a discount. There aren't enough poor to eat all the stale bread in the U.S. Most of it ends up in a landfill for lack of an alternative.

It is fermented by yeast once, to rise in the oven. Why not ferement stale bread again, to ethanol. Every community has bakeries that are creating bread waste, but simple technology can turn this into fuel.

Guest's picture
yeti_mawl

I recently purchased a country living grain mill so that we could make our own organic flours. The thing works like a champ. We got it through http://www.grindwheat.com.

Does any one have any recipes or suggestions of what to make? I am drawing a blank.

Thanks in advance.

ym