By Bonnie Edwards
Published in News on July 23, 2008 1:48 PM
Tom Buffkin might be the president of Franklin Baking Co., but he feels the pain of the rising cost of a loaf of a bread just like everybody else — and perhaps, in some ways more so, since he knows what’s caused that price to climb 20 percent in the last three years.
It’s the same problem that other businesses, especially those described as agribusinesses, are facing — the rising cost of fuel and the effect it’s had on all their raw materials.
“Our commodities costs have doubled in the past three years,” Buffkin said.
And it begins with the diesel that goes into the bakery’s transport trucks that costs $1.69 per gallon more than it did last year — an increase of about 35 to 40 percent, he estimated.
But, he admitted that while high fuel prices are the primary culprit, they aren’t the only one. High bread costs also are a result of weather issues like droughts and flooding.
For example, while corn prices were already high due to demand for ethanol, Iowa recently lost 1.3 million acres of corn in a flood.
“And we use corn for sweeteners,” Buffkin said. “But we’re weathering the storm, because we saw it coming for a long time.”
As far back as 2000, he explained that officials at Flowers Baking Co., of which Franklin is a subsidiary, began investing in automation and other information and energy-saving technologies, as well as how they might be able to better manage their ingredients, particularly the flour, so that when its costs soared in late 2007, their prices only went up seven cents.
“We think because of our investments and managing costs, we will survive even in these difficult economic times,” Buffkin said. “And in no way have we compromised on quality. “We still insist on the best ingredients, and we feel we’re offering our customers the best value for their food dollar — even in this difficult time.”
But Franklin Bakery isn’t the only Wayne County corporation having to adjust to higher prices. The rapid increase in demand for corn for both food and ethanol, combined with high fuel prices and weather concerns, also is putting the pinch on Goldsboro Milling.
It is, said John Pike of Goldsboro Milling Co., a food inflation that is only now just beginning.
“There is news every week now about production cutbacks,” he said.
But, he explained, because those cuts take time to trickle down to the consumer, it may be a few more months before people start seeing meat prices soaring 20 and 30 percent to cover the increased costs.
However, despite freight rates increasing by about 20 percent because of fuel costs, the price of oil is not their biggest concern.
The biggest issue Goldsboro Milling currently faces, Pike said, is the prices of feed ingredients.
The increase in feed cost per year to Butterball is well over $300 million. Corn has gone from about $3 per bushel delivered to about $7.50 delivered since the first ethanol mandate was enacted by Congress in 2005.
Pike said the ethanol mandate was drastically increased last year, and corn prices have continued going up, getting a substantial boost because of the flooding in the corn belt.
Soybean meal has gone from about $185 per ton delivered to about $450 per ton at present.
“Virtually all other ingredients have followed right along,” he said.
And now, an average cost for a ton of finished feed has gone from $175 to about $375.
“All of this cost must be passed along to the consumer, but it's a slow process because there is so much protein available in the marketplace,” Pike said.
This situation, however, has placed a severe — almost insurmountable — burden on the livestock industries in this country, he said.
“We are doing everything we can to cut costs, and it's not enough,” he said. “We have cut production in Colorado, and are looking at what else we may have to do. We need time to see how to produce enough corn, wheat and soybeans to continue to meet the demands of feeding our nation, and the increase in demand from China and others before continuing to divert any more bushels to a very questionable ethanol program.”
Meanwhile, smaller business owners who sell food are doing the best they can, like Keith Weller at Ya’lls Pizza.
“Gas prices are affecting everything,” he said. “It’s the trickle-down effect.”
Corn and grains normally produced to feed cattle and fowl are going to make ethanol, so there’s more of a demand on the agriculture products, he said.
“And that is causing everything else to go up,” he said. “Cheese and meat prices are outrageous.”
Gas prices are affecting freight coming in and his deliveries going out.
“It affects everybody who receives shipments,” he said. “It’s all going to be passed down.”
So far, Weller has avoided having to raise prices.
But now he is paying $76 for a block of cheese that used to cost $38. A bag of flour that was $11 a year-and-a-half ago went up to as much as $37 a bag and is now back down to $27.
“We’re doing OK,” he said. “But it’s taking us longer for a business that’s only two and a half years old. It’s a lot tougher on the bottom line.”
So Weller is doing what he can to carve a niche in the market by making sure the product and the service are of the best quality they can be.
“Consumers are a lot tighter spending their money. So they’re doing business with people who are trying harder,” Weller said.
And that is what Weller is doing — trying harder. He has implemented healthier choices, organic entrees. His meats are antibiotic and steroid-free. He uses recycled pizza boxes for his to-go orders and deliveries. And he has set up recycle bins in the dining room for plastic, cans and glass.
It’s the same approach that Alonzo Beale is taking at J.J. Ashley Bakery, where he says his distributors’ delivery costs are the biggest obstacles.
Flour costs go up almost on a weekly basis. A 50 pound bag of flour that used to cost Beale $23 has gone up to $28 in the past two weeks.
Between May and June, vanilla bean paste went from $21.81 for 20 jars of 11 ounces each went up to $31.40.
“Right now, I’m just absorbing it, because we’re newly opened, and we can’t afford to allow our prices to fluctuate on a weekly basis. That’s not good,” Beale said. “And it’s not just the cost of raw materials like corn and other grains, but the fuel costs are showing up in everything —sugars, flours, butters, everything we do.”
Beale, too, orders only top shelf materials and cannot afford to cut any more on his costs.
“It’s kind of hard. You have to remain competitive. You can’t pass on every increase. You have to take the hit,” he said.
And while a larger bakery may be able to weather the storm easier, Beale said a few cents is a lot.
“But oil is not going to last forever,” he said. “And who knows? Perhaps this crisis is just a catapult to make us look at other sources for fuel.”
But not everybody is as optimistic. Ron Craig, who sells all-natural goat cheese at Holly Grove Farms & Gift Shop says the gas prices have hit him “big time.”
Every time he goes into a hayfield, it costs him $100 for the fuel to run the tractors just that one day.
Craig raises 1,200 goats, and he is milking 900 of them. He ships the cheese all over the U.S., and shipping costs went up 5.5 percent the first of June. That is on top of a fuel surcharge he pays.
For example, it costs him 24 cents a pound to ship to Texas because of the higher fuel costs and other costs that have been driven up by the fuel costs.
In the past year, feed costs have gone up $130 a ton. And Craig picks up 24 tons every two weeks for his goats.
Unlike Weller and Beale, Craig has had to go up on his prices.
“There is not going to be any more cheap food,” he said. “It’s either go up on prices or go out of business. You can’t do it for your health, although this is a pretty healthy lifestyle. Some times I do wonder if I’m not doing it for my health.”
Craig said he can’t blame ethanol. He blames the commodities market speculators. They are the ones who have driven up all the costs, he said.
But right now, he continued, his biggest concern is whether or not there will be enough feed, between the high costs and the effects of the drought on the East Coast and the flooding in the Midwest.
“It’s kind of scary right now,” he said. “It’s the scariest I’ve ever seen it.”
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