Humble baguette victim of global forces

Wheat prices have almost doubled in the past 12 months putting pressure on bakers to raise prices. Photo / Thinkstock

PARIS - "Liberty and baked bread" are all people really need, an old French proverb says.

One of those is about to get more expensive as bakeries raise baguette prices to pass on surging grain costs.

"We have no choice," said Michel Galloyer, whose baguette was voted the best in Paris in 2010. "Wheat prices have exploded. We'll have to pass on 4c to 5c when flour prices start to rise, probably in February."

The French consume about 23 million baguettes a day - more than 8 billion every year - supplied by 33,000 bakeries and retailers such as Carrefour, the National Association of French Millers estimates.

Wheat prices almost doubled in the past 12 months on NYSE Liffe in Paris, with March-delivery wheat closing at €251 ($431) a metric tonne on January 14, after a drought in Russia and floods in Canada and Australia wiped out crops.

Galloyer's dozen Le Grenier Pain stores plan to increase the price of a baguette by 5c next month to €1.15.

"We didn't see anything coming in June or July," said Galloyer, who supplies bread to the residence of President Nicolas Sarkozy. "That weighs on margins because we didn't raise the prices at first. I thought it would come down by January."

Since 2007, the price of a baguette at corner bakeries that dot French towns and cities has risen 6.3 per cent, according to a study by Familles Rurales. At larger retailers, prices are up as much as 19 per cent.

"Les Blés d'Ange," a bakery near the Luxembourg gardens on Paris's left bank, has marked up its "baguette de tradition" by 5c to €1.20 in response to costlier flour. The cost for a basic baguette was unchanged at 90c.

"We left the basic baguette unchanged and plan to keep it like that for now," said Chantal Hanotelle, owner of the bakery whose name means angel's flour.

"If prices rise a lot from here, we're going to have to charge more."

As millers deplete their stocks of cheaper wheat, they'll have to start buying more expensive grain, Galloyer said.

Grain stocks in France are sufficient to meet domestic requirements until the next harvest, Xavier Beulin, the head of the French farmers association FNSEA, said on January 13.

Soaring wheat prices stem from "speculation," Galloyer said. "There is wheat," he said. "There's a lot in stock. In April or May prices will decrease."

Every €30 increase for a tonne of wheat raises the cost of flour in a 250-gram baguette by about 1c, said Valérie Mousqus-Cami, a spokeswoman for the millers association. Paris wheat futures have soared to €251 a tonne, from €128.50 on January 14, last year.

"The doubling of the wheat price from a year ago would justify an increase of 4c," said Remi Haquin, a cereals specialist at the country's crops office FranceAgriMer, based on the outskirts of Paris.

Wheat in a baguette represents less than 10 per cent of its cost, with energy expenses and salaries accounting for a greater part of the expenses, said Xavier Rousselin, the head of arable crops at FranceAgriMer.

Artisan bakers such as Le Grenier  Pain and Les Blés d'Ange make up about 60 per cent of French bread sales, Familles Rurales estimates. About three-quarters of bread sold in France are baguettes, according to the millers association.

Clients have expressed concern about rising bread prices, said Hanotelle at Les Blés d'Ange. Mills are already charging the bakery more for wheat flour even though they're often just depleting their stocks, she said.

Boulangerie Paul, which sells its bread through more than 360 outlets in France and 130 stores abroad, doesn't plan to raise baguette prices, according to a spokeswoman who declined to be identified.

Carrefour, France's largest retailer, cut its average baguette price by 1c to 41c last year, according to an emailed reply to questions. The Paris-based company raised the price by 4c to 43c after grain costs jumped at the end of 2007.

Carrefour declined to comment on whether it will raise prices this year in response to higher wheat costs.

The daily consumption of bread in France has dropped to 120g from 900g in 1900, according to the millers' association.

Still, bread remains a reference of the cost of living in France, said Philippe Chalmin, an economics professor at the University of Paris-Dauphine and an adviser to the Government on food costs.

"The image of France is of the beret, the baguette and a bottle of red wine," Chalmin said. "It's a psychological indicator. It's what makes France France."

- BLOOMBERG