Healthy soil and sustainable growing

["TradingPostPaul" <tradingpost@riseup.net>]

January 21, 2008
Food price inflation is here to stay, warns chief of PepsiCo
http://business.timesonline.co.uk/tol/business/economics/article3221937.ece

The surge in the price of food will continue for at least a further two
years, the chief executive of one of the world's biggest food companies has
told The Times.

Indra Nooyi, the joint chairman and chief executive of PespiCo, predicted
that “structural inflation for food is here to stay for another two to
three years”, and that it would be propelled by government initiatives to
subsidise ethanol programmes, the biofuel that is seen as a more
environmentally friendly alternative to oil.

Over the past 12 months milk prices have doubled as demand for corn, the
staple diet of a dairy herd, increased substantially. Corn is also used in
the fermenting process to produce ethanol. The cost of a bushel of corn
doubled over the same period.

Food companies have also had to cope with a rise in the cost of other raw
materials such as fuel, where the price of oil broke $100 a barrel.

Last year, several food companies, including Hershey, the chocolate bar
maker, warned their shareholders that the rise in raw material costs would
erode earnings.

Ms Nooyi argued that consolidation in the food manufacturing sector would
not address the problem of inflation. She said: “This is not about scale
and taking out costs. It is about the behaviour of governments, of ethanol
programmes.”

She also said that there would not be a “transformational” deal for
PepsiCo, such as a merger with a rival. Wall Street had speculated that
PepsiCo and Danone, the European food group, would make suitable merger
partners.

Ms Nooyi said she did not see any sizeable deal on the horizon that would
make financial sense for PepsiCo shareholders and explicitly ruled out any
acquisition of Unilever's food business.

Ms Nooyi is not the only senior business figure to predict that high food
prices were here to stay. Carl Weinberg, co-founder of High Frequency
Economics, a think-tank, predicted that continuing food-price inflation,
along with an expected slowdown in China, presented one of the biggest
downside risks to the American economy.