Rising costs rub against the grain

Keeping stock: Kayes Bakery store manager Estelle Hamlin keeps a watchful eye on the bakery’s precious stock of flour.

AFTER a century in business, an Invercargill bakery is facing the scariest year on record as it tries to find hundreds of thousands of dollars to meet unprecedented price increases.

Quality Foods Southland (QFS) chief executive Cameron Scott said the company remained committed to its continued operation and meeting its customer contracts despite a tsunami of ballooning costs squeezing its bottom line.

‘‘We’ve never had challenges onetenth of this proportion in the history of the company. To say we are concerned is an understatement.’’

Despite the challenges the rising costs created, new customers secured in China and Japan has the company optimistic about its future.

The 24-hour company operation had been told its new industrial power costs would be increasing by an eye-watering 72% in November after its three-year contract expired.

‘‘I need to find another $220,000 just purely to cover the increased power costs.’’

Quality Foods’ Auckland-based sister company’s power bill had gone from $1 million a year to $2 million.

Many bakeries were also navigating up to 40% increases in flour supply when contracts rolled over.

Kaye’s Bakery co-owner Evan Penniall, told the Otago Daily Times in April the Ukraine war had pushed up the price of sunflower products, while spices had increased between 9% and 47%.

‘‘We’d be like every other bakery — it’s flour, it’s butter, it’s margarine. It’s just everything,’’ he said.

Mr Scott said QFS used about 1000 tonnes of butter a year which had now increased from its previous record price of $8500 per tonne to $10,500 per tonne.

‘‘Every single commodity has gone through the roof. There’s no sign of it coming off.’’

Container shipping costs to Australia for about 100 containers a year had also more than doubled.

‘‘Our freight cost has gone up from around $6000 a container to $16,000.’’

‘‘So that is $1 million we have to find without pushing our price increases over the top to lose our Australian business.’’

Mr Scott believed it was the sanctions on Russia that were causing a nightmare for businesses.

‘‘I don’t think the world realises how important Russia is as a trading partner for oil, gas, flour, oils, grains and fertilisers… [the sanctions] they are imposing on Russia are killing the rest of the world by a significant proportion.’’

He did not expect any relief on the commodities market until the sanctions were lifted, and believed raw ingredient price increases would push inflation up to between 20-40% as many supermarket products contained fats, flours or starches.

Mr Cameron wanted to emphasise, despite the challenges the company was dealing with, there were no plans to alter staffing levels for the 75 staff it employed at the factory as abusy production plan was scheduled for the coming months to supply new international markets.

He believed the high-quality butter pastry products were helping to maintain a competitive edge against European competitors who were facing greater challenges.

‘‘Their prices are going up at an exponential rate to compete against us. So that it so far protecting our export business. But it is a very delicate line…’’

Energy Link managing director Greg Sise, who brokers large consumer contracts, said typically industrial power users would negotiate fiveyear term contracts which levelled power costs over the term. But electricity had doubled in price since 2018. Large increases could be expected at the end of longer power contracts.

Mr Sise expected electricity prices to ease in the next 18 months as the price was influenced by the supplies coming from New Zealand’s natural gas fields where production had increased, easing the load off the Huntly coal-fired plant.

The Ukraine-Russia war and sanctions had profoundly impacted global coal prices.

He encouraged industrial power consumers coming off contracts to seek advice from brokers who were skilled at negotiating competitive prices.

‘‘If they don’t want to wait 18 months to get a better price, they could look at contracting longer than they had in the past.’’

Mr Cameron said there was no escaping all the price increases.

‘‘It’s very real. It’s horrendous what we are facing, and there doesn’t seem to be any alternative.’’