The recommendation will be considered at the 14 June board meeting of the Food Standards Agency (FSA) despite objections from the Biscuit, Cake, Chocolate and Confectionary Alliance (BCCCA).
The association would prefer fortification to be at the bread making stage so that their products are free from folic acid.
However if the panel recommendation is adopted on 14 June, the BCCCA's members will be unable to have a choice from the UK domestic supply and might have to consider importing folic acid-free flour.
In May 2007 the FSA board agreed to recommend that the UK government make the fortification of bread or flour with folic acid mandatory.
The board must now decide whether fortification should occur at the milling stage or at the bread making stage.
The move is aimed at increasing folate intake in women to reduce the incidence of neural tube defects in any babies they conceive.
After considering the cost of the various options the FSA panel argues that the fortification of all flour at 300 micrograms per 100g of flour is the most cost-beneficial policy option.
The policy would exclude wholemeal flour from mandatory fortification.
On balance the cost benefit analysis shows that the options of fortifying flour for bread making only or bread only reach about half of the annual net benefits compared to fortifying all flours with the exception of wholemeal, the panel stated.
The key advantage of mandatory fortification of wheat flour over fortification of bread is that it makes use of existing equipment, expertise and enforcement practices, thereby minimising costs, the panel stated.
"In terms of administrative burdens, the fewer the number of smaller firms impacted, the lower the cost to industry," the report stated.
"Therefore the option of fortifying bread has a much greater cost compared to the other options as there are significantly more bakeries than mills in the UK."
There are 59 UK millers compared to about 4,000 bakers in the UK.
Fortification of bread making flour only would require capital investment in mills for modifications for new fortification equipment.
The FSA estimates it would cost each mill about £20,000 per site.
By contrast the UK Federation of Bakers (FoB) estimates the cost of measuring equipment and training for staff would be about £1,000 per bread making operation, if the industry is made to add folic acid at the manufacturing stage.
As the industry has about 4,000 firms, the estimates represents a one-off cost of at least £4m in total, according to the FSA report.
In considering the objections of the Biscuit, Cake, Chocolate and Confectionery Alliance (BCCCA) against adding folic acid at the milling stage the panel noted it would be difficult to separate out the two types of flour needed by the baking sector as a whole.
The UK's 59 large mills all produce a number of different flours.
There is no agreed definition of bread making flour but it tends to be of a high protein content.
The milling industry has given advice that it might be possible for them to separate flours according to their protein content.
Higher protein content flours tend to be used for bread making than for cake and biscuit making.
However, the panel noted that having mills produce two types of flour would create "significant operational complexities" and "managerial challenges" in distinguishing between supplies of different protein content.
"This would 'narrow' the flour fortified towards predominately bread making flour," the report stated.
"It would not, however, achieve complete separation of bread making flour from wheat flours for other uses and would exclude some lower protein flours used in bread making."
For example, 'value' breads, French style breads and chapattis are often made from flours of similar protein content to that used for biscuit making.
About 4.4 million tonnes of flour is produced in the UK at a value of about £1bn a year.
About 3 per cent of production is exported.
An amount equal to about 1 per cent of domestic production is imported.
In 2006 value of flour imports was £14.7m, while the value of total exports was £22.8m. The UK exports £301m worth of biscuit and cake products and £56m worth of bread a year.
The panel noted that the UK's trading partners would be less likely to import its flour and flour-based products once these are fortified with folic acid.
Ireland is also exploring limiting fortification to bread making flour by turning one of their two main flour mills over to bread making flour only.
The panel believes that this would be more difficult to achieve in the UK.