Kraft calls for talks with ministry over rising food costs

US foods giant Kraft Foods has asked the Ministry of the Economy to start an open dialogue with manufacturers and retailers about how to deal with rising commodity prices.

US foods giant Kraft Foods has asked the Ministry of the Economy to start an open dialogue with manufacturers and retailers about how to deal with rising commodity prices. Frantzesco Kangaris/BloomberShow more

Kraft Foods, the world's second-biggest food company, has called for the UAE Ministry of the Economy to start an open dialogue with manufacturers and retailers about how to deal with surging global commodity prices.

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Vishal Tikku, the managing director for Kraft in the GCC, said manufacturers had experienced stiff opposition from governments across the region this year about upping prices, which was hurting the company's profits.

"We need a dialogue with the UAE Government and the industry to see what we can do about [rising commodity prices]," Mr Tikku said. "It's a dangerous trend, commodities are not coming down and so we need to see how we can resolve that."

The prices of sugar, wheat and diary products have all been increasing in the past year, affecting the cost bases of food manufacturers such as Kraft. The company produces global brands such as the British confectioner Cadbury, Kraft cheeses, Tang juices and Ritz crackers.

Mr Tikku said sugar prices had risen by more than 50 per cent since last year, when sugar cost US$450 per tonne, with the commodity now trading at just under US$700.

The price of a basket of food commodities, including dairy, sugar and meat products, increased 36 per cent last month compared with April last year, according to the UN Food and Agriculture Food Price Index. This was virtually unchanged from the March figure, but 2 per cent below its peak in February.

Mr Tikku said some manufacturers had stopped supplying and selling in the UAE because it was no longer commercially viable. He said the Ministry would not allow an increase in prices unless a company applied to do so first.

Kraft applied four months ago to raise the price of some products by 4 to 5 per cent, but the Ministry was yet to tell the company whether or not it could make the increases.

"We are struggling for a solution, we really are, because the municipalities are fining brands that have increased products' prices, they are fining the supermarkets," Mr Tikku said. The Ministry of Economy declined to comment.

Kraft is trying to manage the increase in its cost base through maximising economies of scale, improving its supply chain and by cutting its advertising and marketing budget. The company is also looking into ways it can innovate and bring products to market more cheaply.

But Mr Tikku said if the Ministry continued to limit the flexibility of manufacturers, the quality of the goods being sold would be hit.

"The real danger is that people may compromise on the product. This is food we are talking about," he said. "If you say you can't take a price increase, any manufacturer that is trying to manage his cost base will do something."

Kraft reported sales last year globally of $49.2 billion (Dh180.71bn), with developing markets, of which the GCC is part, contributing $12bn. Mr Tikku said the group's $19.6bn takeover last year of Cadbury had more than doubled the company's sales from confectionary in the GCC.