The impact of Ukraine on the food chain will be bigger than Brexit and Covid combined: Brian Irwin
The impact of the Ukraine crisis on the food chain will be bigger than Brexit and Covid put together, warns Brian Irwin, chairman of Portadown based Irwin’s Bakery.
In a stark warning, Mr Irwin says the impact of the Russian invasion could result in food prices suffering double digit inflation within the bakery sector.
“The impact of the war in Ukraine is naturally felt at its most intense and violent in the country itself – but the ripples of that war will wash up on the stores and shelves of the supermarkets in Northern Ireland, and we will have to be prepared and able to pay more for a wide range of foodstuffs, in particular bread,” he warned consumers.
“At the moment I can’t overstate the impact on the entire food chain that the war in Ukraine is having. It is impacting on all of our food businesses, not just bakery.
“The impact of the Ukraine crisis is bigger than Brexit and Covid which we’ve just come through. The reality is that for many of the food business, bakeries in particular, the impact has been immediate and continuing and it’s coming through in the worldwide prices for wheat, for rapeseed oil and for maize.
“We’ve seen massive problems with energy because European gas prices have risen to all time highs that nobody could have predicted, along with that the price of oil. This high price of oil has driven up transport, shopping, goods inwards, goods outwards and will eventually feed into packaging.
“So we’ve got a number of fundamental increases in commodities, the massive component of food costs and we’re getting disruption through supply chain at the same time. Cardboard has been a big feature – the cost of cardboard is up 150%.”
Meanwhile, the price of flour has been driven up by the worldwide price of wheat, he says.
“Millers have to buy in wheat – the majority is English wheat but the pricing of that is driven by the world market, because with free trade between markets, the export price rockets and therefore the home price has to follow suit.”
Mr Irwin is very definite that the problem we now could be facing is one of shortages rather than simply food price inflation.
With food price inflation making its presence felt last year, Irwin’s Bakery has already had to raise prices twice last year and will have to do so again, given the Ukraine crisis.
“It would be incorrect for me to put a figure on it but these pressures will feed through quickly. But in our industry I could see increases of double digit percentages quite easily,” Mr Irwin says.
“At the moment what we’re trying to do – and this is really important – is maintain quality and service to the levels that the customer requires and we want to be able to try and guarantee that.
“That means that we simply have to recover our cost increase to be able to do that, and, where we can, to try and mitigate the increases and work with our retailers to do that.
“It’s very early days yet but the retailers would seem to recognise the severity and the seriousness of the situation, and the immediacy of it.”
Retailers and suppliers will both be focused on trying to maintain supply chains in what are exceptional times, he says.
“We’re seeing moves in commodities and fuels and oil which we haven’t seen before, except in wartime,” he warns bleakly.
“We’ve seen gradual inflation, going back to the days of high inflation in the 70s and 80s. but those had a gradual effect, from the time we had an oil crisis which was very traumatic.”
One thing the government can do to counter these trends is to try not to add any more inflation to the mix, Mr Irwin says.
“There’s a number of things out there that they have on their list of things that they would like to do, such as delaying the 1.5% rise in National Insurance. That goes right across the board – it increases all manufacturers’ costs and it reduces take-home pay for employees,” he says.
“Some of the new measures coming in for trying to introduce green measures should be reassessed and re-timetabled, about meeting various targets for packaging, plastic recycling, it’s all driving costs.
“But close in, the government could look at the amount of grain that is diverted into bioethanol plants in England. Grain for humans and animal consumption is being diverted into manufacturing biodiesel – if that could be arrested or contained it would be helpful.
“People have got to decide whether they want a scarce commodity to end up in bioethanol plants, particularly in England and in America. 13% of the world’s maize goes into biodiesel plants in America – that’s an enormous amount.
“Ukraine is a very big exporter of maize in the context of the world situation. They’re currently closed for business, there’s no traffic through the Black Sea or through the ports, there’s a maize harvest which cannot be planted yet. Will it be planted? Will it be cared for and tended, what the harvest going to be like, and without the Ukrainian harvest there’s going to be huge extra pressure on prices.
“With a possible shortage of maize and much higher costs, that in turn drives up the price of feed and milling wheat. Costs for the farmers are massively up in terms of fertilisers and diesel.
Irwin’s has been in existence since 1912 and it now a fourth generation bakery which is continuing to expand, most recently securing a £3.5m a year deal for Waitrose and Morrisons to list its new Irwin’s Together range of speciality breads.
About half of its business is in Northern Ireland, 40% in GB and about 10% in ROI, supplying a wider range of breads and cakes.
The current crisis comes on the tail of the pandemic which saw an immediate jump in demand for product at a time of deep apprehension for the workforce.
“In the first six weeks our demand jumped by 20%, as people stocked up their larders. People were very concerned that there would be shortages of food,” Mr Irwin says.
“It’s now well known that we ran out of pastas and rices and those sort of store cupboard items, but because we were able to keep up full manufacturing and streamline things, we were able to keep up with demand for bread. The result of that was the shelves were replenished each day, the panic dissipated and the public were reassured that we don’t need to buy it today, because there’ll be some tomorrow – that was the mark of, I think, a fantastic service.
“We had to work very hard to find, implement and understand and take measures that would make our workforce safe, and with the timely action of our management and absolutely fantastic cooperation from all our workforce, we were able to do that.
“I couldn’t have been prouder than I was of the reaction from our workforce and management, so we were able to get through all that by introducing the measures, change our operations, changing the way we did things to meet the demand and keep everyone safe, and we were able to work extremely well with our retailers as well, and they rose to the occasion in the main.”
Mr Irwin also finds it gratifying that customers rediscovered their love of baking in the midst of lockdown.
“It was really good to see people going back to their roots, taking pride in their food, loving their food, that was great and they had an interest in the bread and baking,” he says.
“It didn’t dent sales but I think whenever people are interested in their food, they appreciate quality when they buy it and they keep coming back for that quality. Overall, I think it was a great thing for the market and for the people themselves.”
With more eating at home, much more bread was consumed, particularly large sliced bread, sandwiches and toast.
“People went for their traditional favourites so there was a comfort factor there as they retreated to their well loved brands and products, such as Irwin’s Nutty Krust and Veda and our pan loaf Softie,” Mr Irwin says.
“There was good sales in barbecue type products as well – people were trying to cook outside, cook at home.”
Current trends in bakery include the search for health and value for money, he says.
“People are concerned about value and quality for money, so they’re closely looking at the taste and the enjoyment that they derive from the product – that’s a bigger driver than price.
“They’re very concerned about health so they prioritise their health a bit more by choosing goods that they perceived to be better for their health.
“People are valuing mealtimes as a social occasion or even informal meal occasions, should that be everybody having cheese on toast together.
“People are concerned about sustainability, they’re trying to make their purchases in a more sustainable way so they’re looking for signs that the manufacturers are following that trend.
“So we’re looking at all of our packaging to see if we can make it more recyclable, lighter in weight, switching more to paper and cardboard where we can.”
However, new product launches and expansion plans are not a top priority at the moment, he says.
“It’s all still in play. We’re happy to talk about it, but it’s not our centre of concern. To plan for tomorrow, you’ve got to have a today,” he reiterates.
Mr Irwin says his message to retailers would be that a speedy and dynamic response is needed to maintain the supply chain and in some areas there is the potential to lower distributions costs.
“Too many journeys, too many vans – there has to be some realism there. There’s a high level of waste within that system, which is driven by a multiplicity of suppliers with too many out-of-date products at the end of the week.
“I think management of stocks is going to have to be much tighter to achieve the right balance between availability of service and wastage and I think some serious thought needs to be given to how that is going to be achieved
“You’re able to question that level and type of service from a green point of view – vehicle miles, food wastage, those things are much more important now than they ever were.”
“I think all bakers, all food delivery companies have to be looking at how to optimise their delivery structure and high levels of service with frequent calls for small quantities would have to be questioned.”
And hopes for the year ahead are simple: “We would like to hope of the sake of the people in Europe, particularly in Ukraine, that a speedy resolution to the war can be found and that we can start to reduce the uncertainty in the world commodity and food markets – but it will take a while.”