Bakers struggle to swallow high ingredient costs
CRAIN'S: New York Business
February 20, 2012

By Emily Sachar
February 20, 2012 12:01 a.m.

Amy Scherber spends as much time thinking about the country's wheat harvest as she does about her well-known Amy's Bread recipes. Because of factors like poor harvests and strong overseas demand, flour prices have risen 38% in less than two years.

“We're just having to suck it up rather than pass on these costs,” said Ms. Scherber, whose profitable business brings in $11 million in sales annually. Also, hiking retail prices can be difficult, because they're entrenched in so many places, from cash registers to signs in retail stores.

In the aftermath of the recent announcement by Twinkie maker Hostess Brands that it will head back into bankruptcy protection for the second time in less than a decade, retail and wholesale bakers around the city say that they, too, are struggling to absorb extra costs for ingredients, among them flour, sugar, raisins, nuts and some chocolates.

Many price increases have been steep. The U.S. Department of Agriculture's Economics Research Service said the cost of basic bleached white bakery flour has skyrocketed to $19.52 per 100 pounds in January 2012, from $14.13 in May 2010.

No relief in sight
Experts don't see prices for most baking ingredients dropping significantly anytime soon. “We've seen reductions in supply for, say, wheat, and strong demand is still there for baked goods,” said Ed Lee, an expert on baking trends for Modern Baking Magazine in Chicago.

It's not just flour prices that are challenging local bakers. Tu-Lu's Gluten-Free Bakery paid $29.50 for a 50-pound bag of sugar when it opened in the East Village in February 2010, said partner Jennifer Wells. Last month, she paid $37.15. She's determined to hold prices steady after raising the sticker on three items—large cupcakes, cookies and coffee cakes—a year ago.

“In this economy, people don't want to pay a lot for a little treat,” said Ms. Wells, who employs 11 people, plus herself and her partner.

Nut prices are also addling city bake-shop owners. Ms. Scherber was paying $8.18 for a pound of pecans in early January, up from about $5 or $6 a year ago. She also hesitates to pass along her increased costs. “The perceived value of a pecan pie or a sticky bun,” she said, “is only so high.”

Doing his own shopping
Charley Tucker, a partner in Long Island City, Queens-based This Chick Bakes, worries most about the price of freshly ground peanut butter in the wake of a poor peanut harvest in Georgia. He's now paying 50% more for the ingredient, used in four cookie products he sells. To cut out middlemen from his $225,000 bakery business, which is 90% wholesale, he's started shopping for raw ingredients himself at Restaurant Depot and Costco. “We're going to have to raise prices, but not for a while,” he said.

There may be some better news ahead. Butter, after a big run-up in 2010, is trending downward now, data show. And some prices seem to be leveling off. White sugar, for instance, more than doubled between January 2009 and January 2010, to $33.32 per 100-pound bag wholesale, from $15.67, but is now hovering at $28 per 100 pounds in many markets, according to the USDA. Eggs have been relatively flat at between $1.44 and $1.49 a dozen wholesale, according to bakers.

But some bakers aren't taking any chances. Though Ms. Scherber has read in USDA grain reports that prices of wheat flour are due to stabilize, she just locked in a contract at 31 cents per pound for flour for three months, anticipating that it could go as high as 36 cents. “It wasn't worth the worry,” she said.