Bread price to rise as Russia bans wheat exports

Russia – one of the world's largest exporters – has seen a severe drought wipe out 20 per cent of its wheat crop. The ban will run from August 15 until December 31.

Wheat prices immediately jumped 60 cents to $7.85 (4.95) a bushel – the highest since September 2008.

CMC Markets analyst Michael Hewson said prices have surged from a low of $4.25 (2.68) earlier this year, although they remain well below the peak of the last surge in the cost of wheat, which hit $13.49 (8.52) a bushel in February 2008.

The move – from Russian Prime Minister Vladimir Putin – will add to the inflation pressure building in the UK despite sluggish economic growth.

Hovis breadmaker Premier Foods on Wednesday confirmed it would pass rising prices on to retailers, leading to fears that the shelf price of a loaf of bread could rise by up to 10p.

Premier is sourcing all its Hovis wheat from UK farmers this year and, while crops are expected to be bumper in this country, prices will rise in line with the global market.

Figures from the British Retail Consortium this week also showed a sharp increase in the annual rate of food price rises during July, although inflation is slowing elsewhere.

Mr Putin announced the ban at a Cabinet meeting yesterday, saying it was necessary even though Russia has sufficient reserves.

"We need to prevent a rise in domestic food prices, we need to preserve the number of cattle and build up reserves for the next year," he said during the televised meeting.

Mr Putin said the ban – which as well as wheat and wheat flour, covers barley, rye and corn – was necessary even though Russia has sufficient reserves.

It was imposed despite a claim two days earlier by a Deputy Agriculture Minister, Alexander Belyayev, that Russia would continue to export grain. He said national reserves were sufficient to meet domestic demand and allow for exports.

Mr Putin said Russia would decide after the harvest whether to extend the ban into 2011.

Despite the ban, Russian farmers have had little incentive to export because prices have been rising even faster in Russia than in world markets.

Most of Russia's wheat crop damage has been caused by the drought, one of the worst in decades as much of the country endures the hottest summer since records began 130 years ago.