The Price of Bread
By Tim Thorlby
6 minutes
In my previous blog, I explored the many environmental issues affecting our food and drink industry. In this blog, as food prices continue to rise, I take a long, hard look at the economics of a loaf of bread and ask - how did this loaf get here and who got paid?
1 – The price of bread
The price of bread has once again become a political hot potato. The rapidly rising cost of everyday food is now overtaking energy costs as the biggest challenge to our household finances[1]. Most of us spend more on food than energy and whilst you can turn the heating down to save money, it’s much harder to cut back on food – it’s kind of essential.
History shows that rapidly rising food prices can cause serious social distress and have explosive political consequences. The Prime Minister, Rishi Sunak, was motivated recently to convene a Food Security Summit in No. 10 Downing Street in order to show he was aware of the issue.
The price of an average loaf of bread has risen nearly 20% in the last year (to March 2023)[2] and prices are currently still rising. This increase is way over the average rate of inflation and various reasons have been given for it – bad weather affecting grain harvests, the war in Ukraine affecting grain supplies as well as higher energy costs.
I wonder - do you know how much a loaf of bread costs in the UK today?
Well, at the time of writing this, the average price of an 800g white sliced loaf of bread in the UK is £1.38 (April 2023 prices)[3].
In this blog, I want to look at what drives this price, and where the money goes. The retailer? The baker? The farmer?
A recent report[4] for the charity Sustain showed that a typical 800g loaf of sliced bread only delivers 8% of the price back to the farmer who had grown the cereal, including NO profit. So, for our white loaf of bread costing £1.38, that is a measly 11p for the farmer. And they make no money on it.
On the face of it, this does not seem sustainable.
The problem is not limited to bread.
The agri-food sector (including agriculture and the processing and retail of food and drink) was worth £116 billion in 2020[5]. But only 10% of this value (£10.5 billion) was retained by farmers; the other 90% is accounted for after it leaves the farm, in the manufacturing, wholesale and retail process.
We appear to have a rather dysfunctional value chain in the food and drink industry, where little of the value is retained by the farmers.
But maybe this doesn’t matter? Maybe this small return is enough for our farmers? Let’s take a look at the business of farming to see how they are doing today.
2 – The farmers are not OK
I want to provide here a brief overview of our farming sector[6]. Farming differs significantly between the nations of the UK and is regulated and funded differently also, so for reasons of space and simplicity I am only going to provide a snapshot of England’s farming sector, although it does illustrate many issues which apply across the UK.
In brief, seven things you need to know about farming:
Farmers manage most of our land – Some 70% of England is land which is part of a farm and managed by a farmer. Yes, that’s a lot.
Most farms are small - There are over 106,000 farmholdings in England, of which 62% rear livestock. The vast majority are small.
Larger farms produce much more - The very largest farms are significant, industrial businesses with the highest productivity, producing the largest output; the largest 8% of farms occupy 33% of all farmland and produce 57% of the total output.
Farming relies on subsidies - About half of a farmer’s income is from the Government’s ‘direct payment’ subsidies. The largest farms receive the largest proportion of these ‘direct payments’.
Half of farmers are tenants - Only just over half of farmers actually own their own farms, nearly half are tenants on land owned by others.
Few farms are profitable – a staggering 50% of England’s farms make a loss on their farming, with income subsidised by other activities, like tourism. A further 25% break even and only the top 25% largest farms make a regular profit on their agricultural activities.
One quarter of farmers live in poverty - One quarter of farming households live below the poverty line.
We are therefore in the curious situation where we are asking the nation’s farmers to manage the vast majority of our land – to produce food, protect wildlife, conserve cherished landscapes – even though most are making a loss and many are living in poverty, year after year.
So, it would indeed appear that the farming industry, as an economic sector, is rather broken.
Our farming industry also isn’t (perhaps surprisingly) firing on all cylinders on the food production front or the environmental front either.
Approximately half of the UK’s food is imported from other countries, leaving us highly reliant on international supply chains and undermining our national food security.
Our environment is also under immense strain, from declining soil health to loss of biodiversity to the challenge of climate change. (My last blog ‘Farm to Fork’ explored this further.) There are encouraging signs in some sections of the industry – for example, some progress in expanding regenerative farming – but overall it looks like a rather troubled picture, crying out for reform.
3 – Unpicking the problem
Back to the loaf of bread.
The lack of a serious return to the farmer is clearly a problem.
So, why is this happening? When you buy your loaf, where is the money going and why?
The cost of bread
Sustain, a charity championing sustainable food production, have funded some excellent and unusual research[7] which attempts to unpick the supply chains of several staple food items – bread, carrots, etc – and work out where the money is going.
For our 800g sliced loaf of white bread, they analysed the costs, income and profits of each of the main stages of the supply chain – the farmer who grows the wheat, the miller who processes it, the baker who turns it into bread and, of course, the retailer who sells it to us.
Who gets a slice?
This diagram (from Sustain) shows the allocation of value in a loaf of bread’s supply chain
The diagram reveals some interesting things about our typical loaf of bread:
Overall, the profitability of making and selling a loaf of bread is very small, just 4%
Every stage of the process makes a profit – except for the farmer who only breaks even
The farmer only receives 8% of the retail price of a loaf of bread, the smallest slice
Almost every worker at every stage of the process – from the farmer to the factory processor to the retailer - is earning the Minimum Wage. Bread is a Minimum Wage product (an arresting fact to ponder when munching our sandwiches at lunchtime)
It is quite clear that farming – for all but the biggest farms – is just not economically viable. This is not only a problem for these farmers today it also undermines our collective national need to transition to a more environmentally sustainable way of farming; changing methods of agriculture is hard if there is no money for investment.
Follow the money
Why are our farmers paid so little for the essential ingredients in a loaf of bread?
The supply chain appears to give too much power to the handful of big buyers in this case – the chains of supermarkets – who can hold down the prices they pay to farmers.
It turns out that the UK’s £205 billion groceries market is dominated by just 10 retailers who controlled 95% of the market[8] in 2022. The supermarkets have huge bargaining power at the farm gates and the farmers have few other places to sell.
There is clearly a case for a better balance of power between the major supermarkets and farmers. This would allow greater value to flow down the supply chain to more businesses and workers.
4 - Fixing the problem
Sustain’s report outlines a solution to this problem:
Stronger regulation - The supply chain needs much stronger regulation, with a beefed up Groceries Code to guide the buying behaviour of large supermarkets and stronger enforcement powers for the Groceries Code Adjudicator. A report on competition between supermarkets reported in 2008 and made numerous recommendations for improving the fairness of supply chains, many of which have yet to be implemented.
In May 2023, the Competition and Markets Authority announced a new investigation into the food pricing behaviour of our major supermarkets on the suspicion on profiteering at a time of inflation, due to a lack of competition. So the issue remains very much ‘live’.
Alternative routes to market – The evidence suggests that farmers secure significantly greater income when selling to social and community enterprises, particularly where the farmer is agroecological in their approach. These alternative routes also therefore help to deliver more investment into more sustainable approaches to agriculture, so they help for the longer term too.
The challenge here is that such routes to market tend to be small and local, and scaling up would require government support through investment as well as changes to procurement to boost demand (e.g. supporting schools to buy food locally).
There is much potential here to shorten supply chains from farms to consumers through local approaches and support the transition to more regenerative farming.
Greater transparency – Sustain also calls for more transparency in the UK’s supply chains and what is being spent on advertising.
In other words, we need to redesign the food and drinks markets so that they work better and are more likely to deliver the things we actually need – not just producing food and drink, but also delivering a farm sector that is sustainable and which is investing in a greener future.
Fixing the markets means reforming how they are regulated and using public investment to steer the market in helpful directions, like opening up more competition to the supermarkets and pushing forward on more ecologically friendly approaches to growing food.
The taxpayer already invests in farming every year, and how these public subsidies operate can have a significant impact. There is always much discussion about the public subsidy of farms – it used to be about the Common Agricultural Policy (CAP) when we were in the EU, now post-Brexit the government administers the new Environmental Land Management Schemes (ELMS). This should be a key tool to drive positive change in farming, although sadly at the moment it looks very underfunded.
We have the tools to make the changes required – better regulation, intelligent subsidies, more competition. We largely know what needs to be done. It just needs a coherent national vision to make it happen and some political willpower.
5 – Biblical perspective
My last blog explored a biblical perspective on environmental issues and I will not repeat it here, but it covers some of the issues we have touched on here.
I do want to add two reflections though on a couple of issues arising in this blog:
Markets are not fair – There is a fanciful notion in circulation that if we leave markets to their daily cut and thrust then somehow everything will work out fine; products will be delivered efficiently and everything is fair for those willing to work hard. This is utter nonsense. Markets, left to their own devices, have a tendency to leave winners and losers, some businesses turn into monopolies, and the outcomes are anything but efficient or fair. Markets always need to be regulated, to prevent abuses of power and position. In the case of our loaf of bread, the UK’s supermarkets have clearly secured too much buying power and as a direct consequence a surprising number of our farmers live below the poverty line and your typical loaf of bread has become a Minimum Wage product. The Bible is clear on the need for fairness within society and the need to decentralise power. (A longer analysis on the perils of monopolies can be found in another blog.)
Indifference is not an option – Every consumer in the UK is implicated in how our food and drink is produced. I don’t like it any more than you do, but that’s just how it is. This isn’t someone else’s problem; the cheap food we enjoy has a cost borne by other people not that far away. These challenges can seem huge, but you don’t need to become an expert on farming or markets; a starting point is simply to acknowledge that we’re involved and to open our eyes and inform our minds about what is going on, so that when an opportunity to act comes along, we are not indifferent to it.
6 – What next…
Given that this blog has benefited from research undertaken by the charity Sustain, it seems appropriate to finish with a plug for them. They are not the only charity working on food and farming in the UK, nor do I necessarily agree with everything they do, but they are a great starting place if you want to find out more about the issues in this blog.
Sustain “campaigns for a healthy and sustainable food system, which is publicly accountable and socially and environmentally responsible”. Do check them out.
This blog was written by Tim Thorlby. If you found it interesting, you can sign up to receive free monthly email alerts for future blogs.
Notes
[1] The Resolution Foundation have provided a good analysis of food inflation here: https://www.resolutionfoundation.org/publications/food-for-thought/
[2] 19.% increase from March 2022 to March 2023, ONS
[3] According to the ONS Food Tracker; ONS track the prices of a basket of goods across multiple retailers in order to calculate inflation
[4] Jackson, Lisa (2022) Unpicking Food Prices, Sustain | Access here: https://www.sustainweb.org/reports/dec22-unpicking-food-prices/
[5] Gross Value Added of the agri-food sector in 2020, from Defra statistics 2022
[6] Data is drawn from: The National Food Strategy: The Plan (2021) and DEFRA
[7] Jackson, Lisa (2022) Unpicking Food Prices, Sustain | Access here: https://www.sustainweb.org/reports/dec22-unpicking-food-prices/
[8] Kantar Worldpanel data 2022