The impact of soaring wheat costs began to bite this week as the UK's largest miller, Rank Hovis, massively increased the price of its flour, while Goodfellas and Fox's supplier Northern Foods announced plans to slash costs in a bid to offset increases in raw materials.

Rank Hovis said it would add £68.75 to the price of a tonne of breadmaking flour from August, equating to a price increase of about 25% to 40%, depending on contract terms and conditions.

"The rise is due to the unprecedented increase in wheat costs which, as millers, we are unable to absorb," said Jon Tanner, sales and marketing director at Rank Hovis.

"This will have a knock-on effect on prices for all flour-related products."

Federation of Bakers director Gordon Polson warned the hikes would have to be passed up the supply chain to retailers and shoppers. "Bakers will have to pass on the increase, because like the millers they cannot absorb such large increases. There is a huge variety of bread at different prices so there will be different rises but over time I would expect all bread - branded and own-label - and bread for sandwich-makers to increase in price."

Meanwhile, Northern Foods said that managing the rising cost of ingredients was "a key focus" in its interim trading statement on Wednesday.

Chief executive Stefan Barden told The Grocer that Northern Foods would have to take drastic steps to cope with the increased price of wheat.

"We are cutting our production costs by reducing wastage and using correctly sized packaging. We will also make recipe changes and look at using alternative grades of flour, without compromising quality. Flour prices must be recovered, not absorbed."

Barden also said plans were in place to revive Northern Foods' fortunes in biscuits. "We have reduced our promotional backing for some brands and will work closer with retailers to gain better returns.

"We will concentrate on innovating in the indulgent biscuit category which is growing 8% year-on-year. We won't be moving into health cereal bars."

Analysis p30