MANILA, Philippines—Big bakeries should explain why they are raising bread prices this week when flour prices have already been rolled back to its March 2008 level of P957 a bag, the Philippine Association of Flour Millers Tuesday said.

Prior to this rollback, flour prices had reached P970 per 25-kilogram bag.

"With the roll back, there is no more reason for them to raise prices since they claim that their price increase was due to higher cost of flour," Pafmil said in a statement. "Small bakeries on the other hand, have said they will no longer raise bread prices."

Pafmil said big bakeries had threatened to raise the prices of loaf bread by P1 and pan de sal, by another 25 centavos or a total of 50 centavos, if they fail to get an additional discount of P30 per bag of flour.

"The big bakeries are holding the consumers hostage. This does not speak well of the bakery industry," the group said.

"We rolled back flour prices to lend the government a hand during these times of difficulties. With the world economy shaken by the US subprime market meltdown, its effects on the local stock market and the depreciation of the peso, we believe it is time for all of us to get together and cooperate with the government in stabilizing the price situation," Pafmil explained.

It further urged the big bakery sector to follow the lead of the small, community bakeries in freezing price increases.

A 25-kilo bag of flour produces 80 loaves of bread weighing 550 grams. If a loaf weighs 600 grams, one bag will produce at least 73 loaves. The same bag of flour will produce 1,800 pieces of pan de sal weighing 25 grams each.

Pafmil cited as an example the Tinapay ng Bayan Program, wherein flour millers produce low-cost bread to be distributed by the Department of Agriculture to low-income communities.

It explained that the bakeries contracted by the flour millers to bake this bread charged them P1,650 for every bag of flour provided to them to cover for the cost of labor and other ingredients. Flour is provided by the millers.

Thus, the cost of producing Tinapay ng Bayan bread was P1,650 plus P957 (for the flour) or a total of P2,607 for 80 loaves of bread weighing 550 grams each.

If the big bakers produce bread weighing 600 grams, using the same standard formulation, their cost would be the same but they would be able to produce only 73 loaves.

At a selling price of P54 per loaf, 73 loaves would mean gross earnings of P3,942 per bag of flour. As for pan de sal selling at the P2.50 per piece, 1,800 pieces would generate P4,500 in gross earnings per bag.

With the threat of a price increase, Pafmil noted that this would mean a bigger margin for the big bakery sector.

According to Pafmil's computations, a P1.50 price increase for a loaf bread would mean a corresponding additional gross earnings of P109.50 per bag of flour, raising the total gross earnings per bag to P4,051.50.

If the cost to produce 73 loaves of bread would amount to P2,607—as illustrated in the Tinapay ng Bayan example—then the probable revenue per bag of flour could amount to P1,444.50.

Meanwhile, raising the price of pan de sal by 50 centavos would mean an additional P900 in gross earnings per bag of flour, or a total P5,400 per bag of flour.

By using the same formula, the probable revenue in producing 1,800 pieces of pan de sal, could amount to P2,793 per bag of flour.