price at the beginning of the year. Flour prices declined somewhat in August and September. The only other significant ingredient to rise in price was nonfat dry milk, which rose from around 0.4 cent per loaf in late 1965 to 0.5 cent in August 1966. Between January and August 1966 the cost to bakers of farm derived ingredients used in manufacturing white bread rose from 5.9 to 6.5 cents per loaf.

The rise in ingredient costs is almost all directly traceable to a rise in farm prices of wheat and milk. The farm value of wheat used in flour rose from 2.8 cents per loaf from January 1966 to 3.2 cents per loaf in August 1966. The farm value of all ingredients used in bread rose from 3.5 cents per loaf in January 1966 to 4 cents per loaf in August 1966.3

Hence, between January and August 1966 increased farm prices added 0.5 cent per pound to the price of white bread. Costs of these ingredients to bakers rose only fractionally more than their increased farm value-0.6 cent compared to 0.5 cent.

The rise in the farm value of flour occurred because of a sharp reversal in the supply-demand situation for wheat in 1966. Whereas total U.S. wheat production rose steadily in recent years, adverse weather reduced the size of the 1966 crop. In July the U.S. Department of Agriculture forecast a supply of 1,240 million bushels, about 87 million below 1965 production (appendix table 7). Total supply for 1966 (including beginning carryover) was 1,777 million bushels, or 368 million below the figure of a year earlier. The decline in carryover resulted from growing export commitments as well as domestic consumption. The tightened supply-demand situation pushed farm wheat prices up from the annual average of $1.34 per bushel in 1965 to $1.74 in mid-July 1966.

Because of the changed supply-demand situation, the Secretary of Agriculture raised the wheat allotment for the 1967 crop year 16.6 million acres, or 32 percent. Since U.S. wheat acreage in 1967 will be well above this year's level, wheat prices in 1967 probably will drop somewhat below current levels.

CHANGES IN WHOLESALE PRICES

THE TIMING OF PRICE INCREASES

Retail bread prices increased only moderately (about 1.9 percent) during the first 6 months of 1966. However, by early September1 they had risen 7.5 percent (table 4). The retail price increases were triggered by increases in wholesale prices.

The wholesale price increases were heavily clustered in July and August. Between January 1 and August 15, 8 large national bakers made a grand total of 98 general' list price increases. Sixty-four of these occurred during July and the first 15 days of August.

With few exceptions, no significant wholesale price increases happened in the Northeast or the South before mid-July." There were some substantial increases in wholesale list prices for white bread in

* See appendix table 2.

The Bureau of Labor Statistics collects bread prices the first complete week of each month.

4 General price increases are defined as those covering two or more loaf sizes in one city.

A number of these increases occurred after the first week in August and therefore are not reflected in the BLS average price for August.

Based on information received from the eight largest wholesale bakers.

70-873-66

TABLE 4.-Retail bread prices and frequency of price list increases by the 8 largest national wholesale bakers, Jan. 1-Aug. 15, 1966, 27 cities

1 Bureau of Labor Statistics, U.S. average price. BLS collects bread prices on the first complete week of each month.

2 A general price list increase is considered to have occurred when one of the 8 largest national wholesale bakers increased list prices on at least 2 sizes of its own brand of white bread in 1 of the 27 cities surveyed. If in any 1 month each of the 8 largest national wholesale bakers had increased its list prices in each city in which it operated (of the 27 cities surveyed), there would have been a total of 77 general price increases for that month.

3 Through August 15 only.

Source: Federal Trade Commission.

Cleveland and Pittsburgh in March and April. However, no such price activity appeared in any of the eastern seaboard or southern cities surveyed.

General wholesale list price increases by the largest bakers took place in January in only three cities: St. Louis and Kansas City, Mo., and Memphis, Tenn. All except one of these price rises occurred in the first two. These price rises began in St. Louis on January 17 and in Kansas City on January 26. All important price rises in February happened in Memphis and Milwaukee. The price increases in Memphis took place in the first few days of February and appear to have been a continuation of the activity started at the end of the previous month. Milwaukee price increases occurred in the middle of February. Thus, important increases in the wholesale list price of bread had not spread beyond these four cities at the close of February.

Price increases occurred in a number of cities during March and April. On the second day of March, two wholesale bakers raised their prices in Indianapolis. A few days later, a third wholesale baker raised his prices there. Substantial price increases also took place during March in Pittsburgh, Cleveland, Denver, and San Francisco. Price rises again occurred in Cleveland in the middle of April. Two large wholesale bakers raised list prices in Chicago early in April. The only other price increases reported in April took place in Los Angeles at midmonth and in Portland, Oreg., at the month's end.

No important increases in wholesale list prices for white bread were noted in either May or June. In fact, no substantial increases in white bread wholesale list prices were initiated by the large wholesale bakers between the end of April and July 11.10 On that date,

• These wholesale changes were quickly passed on in the form of increased retail bread prices (see fig. 5A). In Indianapolis, Denver, and San Francisco, these wholesale price rises were reflected in higher city average retail bread prices. In Cleveland, the wholesale changes were either anticipated or absorbed by retailers. In Pittsburgh those wholesale rises are probably first reflected in BLS figures for April (see figs. 5A through 5D).

10 Although some cities displayed slight upward movements of retail bread prices during this period (fig. 5A, Cleveland and Indianapolis; fig. 5B, Pittsburgh; fig. 5C, Houston), those small rises apparently were not the result of any general wholesale price pressure.

a price rise was announced for Minneapolis; then another rise was announced for that city on the 16th of July. On July 18 increases in wholesale prices were announced for nine cities-Los Angeles, San Francisco, Denver, Kansas City, St. Louis, Memphis, Chicago, Milwaukee, and Detroit. All of these cities were objects of further price increases during July. Later in the month price increases occurred in Buffalo and New York City.

There is little point in distinguishing July from August dates, since the announced price rises occurred steadily. The northeastern and southern cities, not subject to substantial changes in bread wholesale list prices until August, became the foci of such increases. By mid-August, substantial increases in the wholesale list prices for white bread had taken place in every region of the United States. After mid-July, each of the eight largest wholesale bakers of white bread raised its list prices in more than one large city.

As the above discussion indicates, price increases were made by the largest bakers principally on a city-by-city basis. Only one of the largest bakers announced a price increase effective simultaneously in all of the markets in which it operates. Even that company had previously made its price increases city by city.

In summary, no widespread increases in wholesale bread prices occurred until July. Retail prices in early July were only 1.9 percent above the January level (table 4). But shortly following the increases in wheat prices in June, which became reflected in flour costs to bakers by July 1, bakers in many markets increased their wholesale prices of bread. In nearly all cases, these increases exceeded by varying amounts the rise in flour costs per loaf of bread. Further increases occurred during August. Between the first week in July and the first week in September, retail prices rose an additional 5.6 percent above the January level.

PRIVATE-LABEL BREAD SALES BY BAKERS

Six of the eight largest wholesale bread bakers reported prices for private-label bread. Generally, those prices were below the wholesale list prices for their own brands. Private-label bread baked by wholesale bakers was available in 22 of the 27 cities surveyed. AIthough this bread was sold in many loaf sizes, all wholesale bakers making private-label bread offered a 1-pound loaf. As with the wholesale bakers' own brands, the most usual price change was 1.5 cents per loaf. If the range is extended from 1.3 to 1.7 cents per loaf difference, about one-half (16 out of 31) of the price increases are included. Broadly, the price of private-label bread made by the largest wholesale bakers increased by about the same amount as did the price of their own brands for a 1-pound loaf.

Brand names for private-label bread were not reported by all of the largest bakers surveyed. From those brand names that were reported, it appears that the largest wholesale bakers are making privatelabel bread for grocer associations such as IGA rather than for corporate chains. However, at least two of the largest corporate chain grocers were buying their private-label bread in one city from two of the largest wholesale bakers.

INTERCITY PATTERNS IN WHOLESALE BREAD PRICES

Between January 1 and August 15, 1966, wholesale bread prices increased in most of the cities studied by the Federal Trade Commission. However, the increases were very uneven.

Although there was considerable variation among cities, as a general rule prices rose most in cities with the lowest prices at the beginning of the period. Cities with average prices of less than 19 cents per loaf on January 1 experienced average price increases of 11 percent, or 2.0 cents per loaf (table 5). In fact, the five cities with average prices of 18 cents or less in January experienced price increases of 14.8 percent or 2.6 cents per loaf. At the other extreme, cities with January prices exceeding 20 cents per loaf had increases of about 5.5 percent, or 1.2 cents per loaf.

TABLE 5.-Average wholesale list price of a 1-pound loaf of white bread, January and August 1966, 25 cities

1 An average price of a 1-pound loaf of white bread could not be computed for 2 of the 27 cities surveyed. Source: Federal Trade Commission.

CHANGES IN MARGINS OF LARGE FOOD CHAINS

WHOLESALE BAKER BRANDS

A survey of wholesale prices paid and retail prices charged for regular white pan bread in 25 cities by the 9 largest national grocery chains during the period January-August 15, 1966, shows that these chains generally passed on not only the full amount of the wholesale bread bakers' price increases, but also increased their retail markups as well (fig. 7). In 19 of the 21 cities where wholesale price increases were recorded, the 8 chains increased their retail markups not only absolutely but also as a percent of retail selling prices. Retail price increases were exactly equal to the wholesale cost increases in the other two cities.

The most frequent retail margin increase was one-half cent. This occurred in about half of the cities. The largest increase was 1.4

cents.

The most frequent increase in percentage margins was four-tenths of a percentage point. At the end of the period, August 15, the average retail margin in the 25 cities was 19.6 percent whereas it had been 19.3 percent in January.12

11 Two of the 27 cities listed in app. B are not included in fig. 7. A retail gross profit margin for bread could not be computed from the data submitted by the chains operating in one while the other was excluded because the data submitted by the single large chain operating in it was not considered representative. 12 See table 7.

The margin increases which have occured in bread_might be described as a pyramiding of wholesale price increases. In nearly every city where wholesale prices increased, retailers used the occasion to increase their retail margins and to pass both on in a single retail price increase. Although this coincidence in timing of wholesale price and retail margin increases is not conclusive evidence that the chains would not have raised their retail margins in the absence of a wholesale price increase, it is significant that the chains did not increase their retail margins in any of the four cities where wholesale bakers' prices did not increase.