As the baking industry faces rising input costs, load shedding could be the final nail in the coffin for many, warns Craig Binnion, executive director of the South African Chamber of Baking (SACB).
Bread-baking is a high-volume low-margin business and is highly sensitive to falling volumes or increased costs.
And while load shedding effects bakeries, bread and baking goods costs have risen, hitting financially strained local consumers.
According to the Household Affordability Index by the Pietermaritzburg Economic Justice & Dignity group, white and brown bread prices have increased by 18% in a year from January, 2022 to January, 2023.
In an exclusive interview with Business Report, Binnion said, “The main challenge the baking industry is facing is rising input costs. From increasing flour (raw material) costs, electricity costs, diesel costs, load shedding, collapse of infrastructure (roads) and unrealistic union wage demands, among others.
“Continuous adjustment, planning and management of these issues has put a lot of strain on an organisation’s financial position, productivity and outputs,” he said.
But the continued power supply problems could force the closure of small bakeries due to unaffordable running costs, resulting in job losses, he warned.
He explained that any form of power outage due to load shedding caused the loaves that were within the system to be damaged and lost. Disposing of 8 000 loaves after a power loss was not uncommon.
“We are dealing with a living biological product. The production system cannot be stopped and restarted again once the power resumes. The modern plant bakery is a fully automated system with many time-sensitive environments within the baking system,” Binnion said.
This had forced the plant bakeries to invest in massive generators at huge capital expense.
“The diesel cost to run the generator is a huge concern, as a rule of thumb the cost to produce electricity from a generator is eight times more expensive than Eskom power,” he said.
And small to medium bakeries were severely affected by load shedding due to their inability to obtain finance for generators.
“Small bakery ovens are usually powered by electricity (mostly three phase), the power draw is very high and the cost of a suitable generator would be prohibitive. These bakeries would need to plan and time their production very carefully to enable them to shut down their operation before load shedding commences to eliminate loaf damages.
“With average baking times of two hours being common to complete the baking process in this sector, this would result in a four-hour production loss for a two-hour load-shedding slot. Multiply the loss by the amount of load-shedding slots the bakery receives in a single 24 hour period, and it’s plain to see the production loss is severe,” he said.
Load shedding also effected the quality and supply of water to the industry, which was an essential ingredient within the total baking industry value chain.
Bakeries needed the government to ring-fence the entire agro and agro-processing industry involved in staple food production to either being exempt from load shedding or at least be confined to Stage 1, as failure to do so could affect basic food security (bread supply) causing severe implications, he warned.
The baking industry in not alone in this call, with the SA Canegrowers Association, the Agricultural Business Chamber, among others, also urging Eskom and the government to come to the table with solutions.
Last year was already a challenging financial year for bakeries, as the costs of ingredients surged after Russia’s invasion of Ukraine, which saw a massive spike in wheat and diesel prices.
Binnion said to put it all into perspective, the average Safex wheat price prior to the invasion was R5 950 a ton. After the invasion the price soared to R8 300 a ton, an increase of a whopping 34%.
The wheat price remained high until November and, thereafter, started reducing to seemingly stabilise at around R6 600 a ton, which was still 11% higher than the pre-invasion wheat price.
Fuel prices also surged last year.
Binnion explained that all of the major plant bakeries operated a vast fleet of delivery vehicles and distributed the bread either directly to retailers or through a network of depots.
“Any increase in the fuel price effects the bottom line and bread price increases are inevitable. All of the major plant bakeries use liquid fuel to run the travelling ovens, the doubling of the diesel price after the invasion resulted in severe margin pressure, forcing the bakeries to increase selling prices,” Binnion said.
International shipping costs increased and further impacted the availability of vessels, he said.
SACB members include wholesale/plant bakery members like Albany Bakeries (Tiger Brands), Premier Foods and Sunbake Bakeries (Foodcorp). It also includes retail/emerging/independent bakeries like Globakeries, Bimbo QSR South Africa, Famous Brands Management Co, Zeelandia South Africa, Goosebumps, Pick n Pay and the Spar Group, as well as several supplier and associate members.