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Prices to keep rising at the super market


The Atlanta Journal-Constitution
Published on: 02/29/08

You've probably noticed higher prices at the super market, and you can expect them to keep rising.

Leading U.S. makers of consumer goods, such as laundry detergent, cereal and boneless chicken breasts, said recently they will raise prices to make up for higher raw material and energy costs.

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The companies were gathered in Florida for the Consumer Analyst Group of New York's annual conference. Prices already have been on the rise. Food and beverage prices increased 0.7 percent from December to January, the highest month-to-month increase in 11 months, according to data collected by the U.S. Bureau of Labor Statistics.

Corn and oil, in particular, are key inputs pushing up costs for a wide-range of consumer goods and their packaging.

Several companies at the Florida conference said they had been hit by unprecedented increases in the prices for their core raw materials.

•Sara Lee Corp., which makes Sara Lee breads, Jimmy Dean sausage and Hillshire Farm food products, expects its raw material prices to increase by $210 million in its 2008 fiscal year. That's on top of a $96 million increase last year.

•Procter & Gamble Co., maker of Tide detergent, Crest toothpaste and Olay beauty products, projects $1.2 billion in commodity and energy costs in 2008, more than double the costs of 2007.

• Cereal makers Kellogg Co. and General Mills Inc., which count heavily on grain for their goods, said they're grappling with higher commodity prices.

• PepsiCo Inc., the Coca-Cola Co. and their bottlers face higher prices for aluminum, sweeteners, such as high fructose corn syrup, and plastic, an oil product.

• Tyson Foods Inc., which makes chicken, beef and pork products, said higher raw material prices could add close to $800 million to its costs in 2008.

THE ETHANOL EFFECT

Food prices have been rising as demand for these goods booms in emerging markets, led by China. But ethanol, a gasoline alternative largely made from corn in the United States, also is being blamed.

Tyson chief executive Richard Bond pointed to government mandates to produce more ethanol as the chief culprit for his company's rising costs. Grains such as corn are used to make feedstock, which constitutes 40 percent of the cost to produce chicken, Bond said. For beef, feed accounts for 80 percent of costs.

Tyson has to raise prices to keep up with these costs, Bond said."We don't have any choice," he said. "The consumer will have to pay for these increases in inputs at some point and time."

HIDING THE STICKER SHOCK

If you're trying to gauge the price hikes, they may not be obvious in all cases. Some companies could decrease slightly the amount of food in a standard package to offset commodity increases, put more emphasis on small individual serving packages that command higher prices per ounce or change their promotions. Instead of five items for $10, for example, you might get four for $10 this year.

Companies expressed little concern about consumers shifting from their brands to cheaper private-label store brands. Their research shows that people continue to buy branded items even during recessions.

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