2008-01-09 / Features

Bread Prices Reflect Supply And Demand For Wheat

BY TONY BARSAMIAN O

BY TONY BARSAMIAN


        
        
          
        
          One of the delights of city living, especially here in the Astoria-Long Island City area, is the fresh bread available at the bakeries that seem to be found on almost every block. Warm, fragrant loaves are set out every day and local residents, who know a good thing when they see, smell and taste it, are eager to snap them up.

However eager to partake of these gastronomic delights they may be, the customers at local bakeries have noticed a disquieting phenomenon of late. The price of a loaf of fresh bread has been steadily increasing- from $1 to $1.40 for a seven-ounce loaf at one bakery, for example. Of even greater concern to bakery owners than the cut into their profit margins that the price hike represents is the loss of their customers' goodwill.

"If people don't want to pay these prices, there will be no bread bakeries left in New York," worries Vinny Decanio, one of the owners of Parisi Bakery at Broadway and 31st Street in Astoria.

Parisi Bakery has produced bread, cookies, cakes and other baked goods from the ovens in the back of their shop at 30-17 Broadway for nearly 50 years. This week, Parisi's owners joined with the owners and managers of five other local bakeries with similar histories in placing a full-page advertisement in the Gazette in an attempt to explain to customers why the prices of bread and other baked goods are going up at a surprising rate.

"Flour prices are going sky high. We are trying to keep costs down to help our customers, but it is very difficult. We want you to know that we don't want to raise prices, but flour costs have nearly doubled. We are placing this advertisement to explain to our customers the terrible situation we are all in together. Please be patient with us as we try to keep costs at a minimum," reads the ad submitted to their customers by Parisi and fellow establishments Island Bakery, 42-17 Broadway, Frank's Bakery, 36-02 30th Ave., De Simone Bakery, 27-17 23rd Ave., Angelo & Sons Bakery, 22-09 Astoria Blvd. and Rose & Joe's Bakery, 22-40 31st St.

Decanio got down to specifics. "Four months ago, flour was $19 a bag per 100 pounds," he explained. "Now it is $33 dollars for the same bag. We expect that it will be $40 by March."

Silvio Dastolfo of Island Bakery, on Broadway since 1984 and in business since 1954, agreed. "I was paying $22 dollars a bag for durum flour. Now I am paying $66 a bag. We can't raise the prices fast enough to keep up with the increased costs. We need the increase to keep pace with our expenses, but if we raise [prices] too high, people will stop buying."

Anthony Porretto, the owner of Rose & Joe's Bakery, which has served the Astoria community for more than 30 years, concurred. "I did not raise the price to the same level that the flour [prices have] increased. We passed small increases to our customers, but now we have to add some more."

John De Simone, owner of DeSimone Bakery, in the Long Island City-Astoria area for more than 30 years, complained, "Every day, it seems we get a raise in prices from our suppliers." A flour supplier sent customers an urgent letter explaining the relationship between rising flour prices and commodity prices. They boiled it down to a matter of supply and demand. Asian demand is outpacing the supply, coupled with a weak U.S. dollar and, this creates a recipe for high prices, the letter explained.

Dastolfo agreed that demands on American flour producers from abroad are increasing. "Flour companies tell us that they are selling wheat to the Ukraine, Australia and China. These deals are being reported to be at 300,000,000 bushels per deal."

Those prices may make flour producers happy, but bakeries like Dastolfo's Island Bakery are feeling squeezed. "Supply and demand is in operation here," Dastolfo said. "The supply is less, but the demand is the same. The price increases are unbelievable. We are seeing phenomenal increases, often double and triple what we used to pay."

The supply of domestic wheat is not expected to increase any time soon, According to Wheat Outlook, a report from the Economic Research Service of the U.S. Department of Agriculture, "The projected U.S. season average farm price is raised 30 cents on each end of the range to $6.20 to $6.60 per bushel, reflecting sharply higher cash and futures prices. Projected U.S. wheat ending stocks for 2007/08 are lowered [by] 32 million bushels this month (September 2007), reflecting higher expected domestic use and exports. At 280 million bushels, this year's ending stocks are the lowest in 60 years."

Lowered wheat stock means tighter supplies and higher prices for bread bakeries. Nor are exports anticipated to decrease. "Exports are projected [at] 25 million bushels higher based on increased foreign imports and reduced supplies and exports for key competitor countries. Demand for wheat remains strong globally, despite record prices in most places around the world," according to Wheat Outlook.

Also among the factors cited as bringing about escalating flour prices by the bakery owners interviewed was the increase in consumption and use of ethanol and the rise of the biofuel industry. Market conditions and policy factors are fueling the rising interest in ethanol, according to other reports from the USDA Economic Research Service. A rapid run up of oil prices over the past several years has combined with provisions of the Energy Policy Act of 2005 and already existing Federal and State biofuel programs to provide economic incentives for an expansion of U.S. ethanol production. Corn is being used for ethanol production, the bakery owners concur, and wheat is not being developed. Thus, flour has nearly doubled in price.

Even with the ethanol industry operating at less than full capacity, the USDA's 2007 long-term projections show ethanol production growing to more than 12 billion gallons by the middle of the next decade, assuming no changes in policy or technology.

In 2006, ethanol (by volume) represented about 3.5 percent of motor vehicle gasoline supplies in the United States. But 14 percent of the U.S. corn crop went to ethanol production, a share projected to grow to more than 30 percent by 2009-10 and to remain at that level in subsequent years. Even so, by the middle of the next decade, ethanol production (by volume) is expected to represent less than 8 percent of annual gasoline use in the United States. Thus, while the growth in corn-based ethanol can contribute to the nation's fuel supply, that contribution is relatively small in the gasoline market but can have large effects in the agricultural sector. Parisi Bakery is a case in point. The bakery's ovens are oil-fueled and thus affected by rising oil prices. "We use over 500 gallons a week," Decanio said. "[Oil] was 69 cents a gallon. Now it's $3.35 a gallon. That is a big cost increase."

As the ethanol industry absorbs a larger share of the corn crop, higher prices will affect domestic use and exports, providing for more intense demand competition between domestic industries and foreign buyers of feed grains- the same effects already being felt by the flour suppliers and bread bakery owners, among them the six who were interviewed for this story.

"The government should step in and work out a program for farmers." DeSimone declared. "It should not hurt the bakeries and the consumers. Just let the farmers produce more; they certainly can." This is unlikely. With lower government payments, the agricultural sector will rely on the market for more of its income, and the share of income provided by government payments is projected to fall. Government payments, which averaged more than 7 percent of gross cash income in 2000-05, are expected to account for less than 4 percent during most of the next decade- meaning that more than 96 percent of gross cash income in the agricultural sector would come from cash receipts and farm-related income.

The letter to the bakeries concluded, "You should be braced for massive increases...The only way to stay afloat and be competitive during this turbulent environment is to be strong and raise your own prices."

The rise in flour prices, coupled with the almost certain lack of government assistance for the wheat producers and concomitant escalating bread prices will inevitably result in fewer customers and scaled-back operations. The bakery owners interviewed all hope their businesses can stay open, but are largely pessimistic. Dastolfo noted, "We need the increase to keep pace with our expenses. But if we raise it too high, people will stop buying." Frank Roscigno, with his wife, Rita, owner of Frank's Bakery, added, "It is hard to explain to customers why prices are so high. We can't just keep raising prices. A lot of bakeries are shutting down. I don't see it getting better. I don't know how many bakeries can survive."

"We have to raise prices just to keep up," DeSimone said, but sounded the alarm, advising that consumers are eating less bread at this price point. " Eventually bakeries will go out of business," he predicted.

"There is no solution in sight," Salvatore Mangiafreno, owner of Angelo & Sons Bakery, added. "Some bakeries will go out of business. I never saw anything like this before."

"I did not raise the price to same level that the flour increased," Anthony Porretto, owner of Rose & Joe's Bakery, pointed out. "We passed small increases to our customers but now we have to add some more. We are trying to survive." Porretto is concerned that customers are not aware of what is going on in the market place, but will vote with their feet and the result will inevitably and irrevocably harm the bread bakery industry. "As flour prices go up, a lot of bakeries are going to get out [of business]," he said.

All the bakeries cited see raising the price of their products as a last resort, and one that will have more and more negative consequences than a shrinking customer base. The six local bakeries wanted to get the word out: the increase in prices are not their fault or choice. They just hope their customers understand.

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