Food makers struggling to offset higher commodity costs: CAGNY

By Caroline Scott-Thomas

- Last updated on GMT

Related tags: Irene rosenfeld, Middle east, Kraft foods

Several major food manufacturers are struggling to offset higher commodity costs with price increases, according to company executives at the Consumer Analyst Group of New York (CAGNY) conference.

Corn, soy and wheat future prices have soared recently and, along with cotton, some see these core crops as battling for limited US agricultural space. Wheat prices in particular have been driven upward by unrest in North Africa and the Middle East, and demand for US wheat is high, due to tightening supplies elsewhere following Russian drought and fires last year and heavy rain in Australia and Canada.

Speaking at the CAGNY conference on Tuesday, Sara Lee CFO Mark Garvey said that the company expects to return to growth in the second half of fiscal 2011 on the back of price increases, which it hopes will offset higher commodity costs.

Earlier this month, Sara Lee announced its intention to raise the prices of its foods and beverages, as it reported nearly flat Q2 sales of $2.35bn.

ConAgra Foods’ CEO Gary Rodkin said that a lowered earnings forecast for the company was realistic considering the business conditions facing the company, and also discussed price increases, saying they are necessary considering the inflationary environment, and already underway.

Meanwhile, Kraft Foods’ CEO Irene Rosenfeld said that Kraft expects to increase operating margins by 2013 through increasing prices, as well as cost reductions and increasing sales of higher-margin products.

The company said that rising grain prices could add $700m to $800m this year to the company's overall costs in North America.

Hershey, on the other hand, said it is on track to reach $1bn of international net sales growth by 2015, although it expects this growth to come from outside of the United States.

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