AB Foods says cycle of food price rises nearing the end

Associated British Foods does not expect to have to push through many more price increases to its food customers in the second half of the year, as input costs including wheat, vegetable oils, freight and energy start to fall.

Chief Executive George Weston told Reuters that the group, which has a grocery business including the Twinings tea, Jordans cereals and Ovaltine drinks brands, had managed to increase prices to cover its higher cost of raw materials.

“We’ve had 18 months of trying to keep up with these cost increases,” he told Reuters as the group reported first half results.

“We’ve achieved cost recovery in most areas now, so the second half will see much less,” he said of the price rises.

However sugar is likely to be an exception.

“Sugar customers will likely see higher prices. The price of sugar as a commodity globally is the highest it’s been for some while,” he said.

Weston said some input costs were now falling, highlighting declines in wheat, vegetable oils, freight and energy, although inflation in areas such as food chemicals and salt remains high.

First half adjusted operating profit in the group’s food businesses as a whole, comprising grocery, sugar, ingredients and agriculture, rose 13 per cent to £373 million on sales up 23 per cent to £5.3 billion.

Weston defended the price rises, saying it had taken a hit to profit margins.

“We had absolutely no choice but to increase our prices such was the extent of the cost inflation,” he said.

“We’ve recovered by and large those cost increases, we haven’t held on to the old margins.”