Britain's biggest food producer has called on the Government to free more farmland for growing wheat in an effort to combat spiralling raw material prices.

Premier Foods said that further price rises on Hovis, its leading bread brand, and other everyday products were almost inevitable as food companies struggle with unprecedented cost pressures.

The warning came yesterday as Premier reported a £73.5 million pre-tax loss for 2007 and almost halved its shareholder dividend. It also revealed a deal with banks that would raise its debt facility by a further £225 million to £2.1 billion.

Wheat prices have more than doubled in the past year amid buoyant demand from China and India, poor harvests and the increasing amount of farmland given over to biofuels. A loaf of Hovis rose to more than £1 for the first time last September. Now it sells for £1.15.

Robert Schofield, Premier's chief executive, said that a political solution should be found to boost wheat supplies in the UK. “Food inflation has been benign for the past 15 to 20 years, yet it's anything but benign at the moment,” he said. “It's turbulent. It's not 1 or 2 per cent but in the teens.

“I can't see any reason for wheat to come down from its current levels. You have got to understand the level of demand that is coming out of the Far East. India and China are buying whole tranches of wheat and I think it's a situation where we need to take care of our own industry, plant more and ensure greater security of supply in food. There needs to be an initiative taken somewhere in the political framework.”

Shares in Premier rallied 6p to 98p yesterday amid relief that the company had managed to squeeze a higher debt facility out of its banks.

However, analysts said that Premier may need to increase its debt facility again this year, given the pressure on the business. Premier's net debt is £1.6 billion after the acquisitions of RHM and Campbell's in 2006.

Mr Schofield added that sales of Hovis had fallen “significantly” before Christmas, as rivals such as Warburtons delayed their own price increases.

Premier will also have to cut promotional activity in the coming months to offset cost inflation. The cost pressure will knock at least £10 million off trading profit in the business in the first half of 2008.

Rob Mann, a Collins Stewart analyst, said: “With cost inflation continuing to constrain the core trading performance, we would not be surprised if the measures taken to alleviate the balance sheet pressure proved inadequate, leading to another round of conversations with the company's bankers. The company's Micawberish view of its prospects does not inspire faith that 2008 will be any better than 2007.”

Premier's full-year results showed that the company made a pre-tax loss of £73.5 million in 2007, against profits of £59 million the year before. Underlying operating profits fell 24 per cent to £76.1 million.

Turnover almost tripled to £2.2 billion after Premier's two recent acquisitions. Shareholders will receive a full-year dividend of 6p a share, against 12p last year.

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