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U.S. food companies plan more hefty price increases

Section: Daily Dispatches

By Elizabeth Rigby and Hal Weitzman
Financial Times, London
Sunday, July 20, 2008

U.S. food companies are preparing another round of hefty price increases as soaring commodity costs force them to pass on rises to consumers.

Sara Lee, maker of meat products such as Jimmy Dean sausages, said costs would compel it to push up prices on meat lines by up to a fifth later this year.

"We will be taking price increases on the vast majority of the protein products in this calendar year," said C.J. Fraleigh, Sara Lee's chief operating officer for North America, in a recent interview. "Price increases vary a lot by type of products but the increases will be as low as zero and some products we will decrease on and other increases [will be] in excess of 20 per cent."

Kraft Foods, Kellogg's, ConAgra, and Tyson are also pushing through increases, which are expected to contribute to inflationary pressures in the U.S.

U/S food prices have jumped 5.3 per cent for the year ending in June, the Department of Labor reported last week, adding to the pressures on Americans from rising unemployment, a slumping housing market and higher petrol prices.

The increase in food prices was steep in June, when they moved up 0.8 per cent compared with 0.3 per cent in May.

Crop prices have boomed in recent months on the back of strong demand from emerging economies and supply concerns following floods across the agricultural lands of the US Midwest.

In June meat prices surged to a 22-year high because of record costs for corn and soybean, food crops for livestock. The U.S. Department of Agriculture expects pork production to fall 3 per cent in 2009, against a 1 per cent fall for chicken and beef.

Bill Lapp of Advanced Economic Solutions, an agricultural consultancy in Omaha, said higher prices looked set to prompt the biggest decline in meat consumption for 27 years.

"Consumers are expected to reduce their meat consumption next year by an average of nearly 5 pounds per person," he said. "That would be the biggest decline in meat consumption since 1982."

Kraft Foods, which has said it will push up its prices by 12-13 per cent this year, said some of its cheese categories could rise 25 per cent.

Kellogg's said last week that "dramatic" increases in grains and energy had forced it to push up prices by a few per cent.

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