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The flour mills notified the bakeries over the last two weeks that they are raising flour prices by 35-40 percent starting today, July 1.

The sharp rise in prices is a result of the increase in world flour prices by 30 percent over the last month, as well as the rise in the dollar against the shekel.

In response, the bakeries have informed the Trade and Industry Ministry that they cannot continue to produce price-controlled bread if they do not receive immediate approval to raise these prices by at least 8 percent.

The types of bread under price supervision include plain white bread, plain brown bread (Lehem Ahid) and regular challah - all of them sold whole or sliced.

The Trade and Industry Minister, Shas' Eli Yishai, is expected to hold an emergency meeting in his office today to solve the crisis.

It is clear to the ministry's senior officials that there is no choice but to raise bread prices, and the discussion will center on the rate of increase.

Bakery owners hope that Yishai's political social-welfare agenda will not prevent him from approving the price increases.

According to the bakeries, most of them have enough flour to bake bread only until Tuesday. Following their calculations, the price of dark bread needs to increase by 12 percent .

In the letters they send out the flour mills threatened the bakeries that any bakery that does not agree to the new prices will have its flour supplies cut off, Yohanan Aharonson, the head of the Bakers Association, told TheMarker.

"The increase in flour prices will bankrupt the bakeries. They must receive a significant price rise in supervised bread," explained Aharonson.

"Otherwise, they will not produce it. They have reserves of flour for a day or two, and in exceptional cases three," he added.

World wheat prices rose from $180 to $240 a ton in the last month. According to the state's formula for setting bread prices, it should increase the cost of price-controlled bread by 6.5 percent. However, 2.5 percent of this is supposed to go toward efficiency measures - allowing for only a 4 percent increase for bakeries.

But the last increase came in May 2006 when the ministry allowed only a 7 percent increase instead of the 15.3 percent rise calculated from its formula for such an increase.

According to Aharonson, the 8.3 percent was supposed to be made up by a requirement that bakeries could not sell price-controlled bread at a discount. In practice, he says that in the case of dark bread, the price is unrealistic. Other products subsidize it by about 30 percent.