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Kraft CEO attacks trade barriers on sugar prices

By staff reporter , 23-Jun-2006

The chairman of Kraft Foods, the world's second biggest food company, Roger Deromedi, has launched an attack on EU and US trade barriers that are driving up the price of commodity ingredients such as sugar and coffee.

Deromedi is reported by Reuters to have told delegates at the 50th World Food Business Summit in Paris that commodity costs on sugar, coffee, cheese and nuts had risen by more €640m ($800m) between 2004 and 2005.

And Q1 2006 has seen the price of such commodities increase by €80m ($100m) compared to Q1 2005.

"Common sense demands that we are all in the forefront to tear down the wall of trade barriers," Deromedi is quoted by Reuters as telling delegates.

EU sugar reforms, which come into effect on 1 July 2006, feature a number of concessions designed to give European sugar producers a viable future. First there was the climb-down from the original proposed 39 per cent price cut to a figure of 36 per cent, and most significantly for sugar producers, there was agreement the sector would be compensated for, on average, 64.2 per cent of this price cut.

This has given the sugar industry reasons to be hopeful. A recent Standard & Poor's Ratings Services study, entitled 'Sweet'N Slow: Gradual Liberalisation Of EU Sugar Regime Preserves Credit Quality', said that the gradual nature of the reform should provide a fairly protected environment for European manufacturers over the next four years.

Reform of the EU sugar regime has been a long time coming. There has been intense pressure for years on the EU, the world's third-largest sugar producer, to change its heavily criticised regime that artificially which supported internal prices at three times the world level.

But Deromedi is reported to have told delegates in Paris that such reforms are leading to food companies reliant on commodities such as sugar seeing costs increase.

A one cent per pound rise in the cost of sugar in the US costs Kraft about $8m per year, according to Deromedi.

And trade barriers for other commodities such as coffee and nuts are costing the developing countries who produce these commodities.

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