French Bakeries Struggle with Rising Costs of Dough

Skyrocketing costs of inputs for French bakeries are threatening their very existence, according to some bakery owners.

While the baguette is recognized by UNESCO as an essential and important part of French culture, its affordability is being called into question.

Video Spotlight:  

This post is based on the CNN article, Bakeries are central to the French way of life. Now they are fighting for survival., by Anna Cooban and Marie Barbier, March 31, 2023, and the YouTube video in the Spotlight.  Image source: William Ryall 2010

Discussion Questions:

1.  What kinds of inputs are rising in price for French bakers?  Why are price increases happening?

Guidance: Most of the cost increases are directly or indirectly related to Putin’s invasion of Ukraine.  Costs for baking ingredients are up due to increases in the price of wheat and flour, largely related to the war in Ukraine, as well as increased transportation costs. Fuel costs have risen, affecting businesses up and down the supply chain.  Increased costs of farming and dairy production due to rising fertilizer and feed prices are also being passed along to bakeries.

The last 12 months have seen butter prices double and white flour prices triple.  Labor costs are up too.

The worse impacts, however, are from the cost of electricity, which for some businesses have increased 500 percent.  This is a result of higher prices for natural gas and energy due to the Russian supply being cut off and alternative markets having to charge higher prices than were paid in the past.

2. How does the rising price of inputs affect the productivity of French bakeries?

Guidance: Productivity is a ratio of outputs/inputs.  Any time the cost of inputs increases but output does not increase in a proportional way, productivity decreases.

3. What options do French bakeries have if they want to stay viable?  What are some of the consequences of each option?

Guidance: Some bakeries have tried to limit their energy usage by not heating their facilities as much as usual.  This has a minimal effect when the price increases have been as steep and rapid as in the last year.

In general, in situations like this, businesses look for ways to cut other costs and operate in a more “lean” way, eliminating waste and looking for production efficiencies.  Sometimes businesses can look for alternate suppliers.  In this instance, the main way of responding, in addition to trying to curtail energy use where possible, is to raise prices.

It is unclear how much of a price increase consumers can bear. If bakeries can’t raise prices enough to maintain their profit margins, or if they do and consumers cut back on purchases, the bakery owners worry they may go out of business.

Also, price increases across the board, as businesses pass them along to consumers, mean that employees will demand further wage increases in response to rising prices, creating a vicious cycle of rising costs and rising prices.

4. What needs to happen in order for businesses to raise wages without having to make other adjustments, such as those mentioned in the answer to question three?

Guidance: Productivity improvements are the key to real wage increases.  When workers become more productive, via training, job redesign, motion study, technology, or other such approaches, businesses can afford to pay them more.

In this case, French bakeries are hard pressed to find any quick solutions to the rapidly rising costs of their inputs, so improving productivity when measured broadly as outputs/total inputs will be extremely difficult.

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