Nestle says it will hold price hikes to 1.6%

By Reuters
Posted March 22 at 1:39 p.m.

Nestle AG , the world’s biggest foodmaker, expects to raise prices by 1.6 percent in 2011, the company chairman said Tuesday, similar to last year’s increase despite soaring raw material costs.

Peter Brabeck-Letmathe told Reuters Insider that the company, which makes Nescafe coffee and Gerber baby food, would spend an extra $3.5 billion on raw materials in 2011, with more than half of that would be absorbed internally.

“I don’t think that this is something that will go away, frankly speaking, I think we have to learn to live with higher raw material costs,” Brabeck said. “The total cost of the increase will be in the order of $3.5 billion.”

“I would expect … price increases in the order of 1.6 percent, something like this,” he said.

Soaring commodity costs are forcing big food companies to push up their prices and slash internal costs, as they battle to keep their growth targets on track.

Nestle also raised prices by 1.6 percent last year and Jon Cox, an analyst at Kepler Capital Markets, said the similar forecast for 2011 seems a bit low.

“I assume (it could be) somewhere closer to 2 percent,” he said. “However, maybe it reflects the fact many commodities are now coming down again, such as cocoa and wheat.”

Nestle said in February that strong demand in emerging markets would help it offset a steep rise in input costs in 2011 after it beat sales forecasts for 2010. Full-year net profit rose to 34.2 billion Swiss francs, including proceeds from the sale of its remaining stake in eyecare group Alcon Inc. to pharma group Novartis AG .

Peers Danone SA and Unilever Group recently said they were confident about passing on higher costs but Kraft Foods lowered its 2011 forecast for earnings growth as it expects some consumers to resist price increases.

Commodities such as coffee, cocoa and sugar have hit the highest prices for three decades, while grains, vegetable oils and crude oil have also risen.

“For me it is very clear, there is only one message — no food for fuel,” Brabeck said of the global food inflation that has sparked unrest in the Middle East. “I don’t think in today’s world it is correct to use food for fuel when we have more than 1 billion people going hungry to bed.”

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