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Nestlé confident that food prices will stabilise

By Anthony Fletcher , 12-Jun-2006

Nestle doesn't expect raw material prices to rise further this year, despite a recent FAO report that forecasts an increase of over 2 per cent in the world food import bill in 2006.

Nestle chief executive Peter Brabeck told investors that his company would be sticking to its previous forecast of an average oil price of around $65 a barrel to $70/bbl for this year, according to a report from Marketwatch.

Speaking at the group's Swiss headquarters, he said that though the price of sugar is likely to rise, prices for other raw materials, such as wheat, would be coming down.

 

However, the FAO insists that world cereal demand will surpass supply in the coming 2006/07 marketing year, pushing down stocks to an uncomfortably low level.

 

This, it says, will also continue the steady upward trend in prices.

 

"Based on current indications, several agricultural commodities are likely to experience still more unstable months ahead and, in most instances, the fundamentals point to even further gains in prices," said the June issue of FAO's Food Outlook report.

 

FAO is forecasting an increase of over 2 per cent in the world food import bill in 2006 compared to 2005. The increase is expected to be strongest for cereals and sugar and smallest for meat.

 

According to the report, a 10 million tonne decrease in world wheat production is forecast this year, with a strong demand outlook set to drive up world trade in 2006/07 to 110 million tonnes. The world balance sheet for 2006/07 is expected to show a sharp drop in ending stocks as well as a decline in the stocks-to-use ratio to 25 percent, the lowest in over three decades.

 

Against this background and even barring any major or unexpected weather problems in the coming months, wheat prices are likely to remain generally high and volatile in the new season, the FAO said.

 

Brabeck did accept that results for the first six months of this year would be affected by the rise in commodity prices between the first half of 2005 and the first half of 2006. But the Swiss food giant will be hoping nonetheless to continue its solid financial performance across the board.

 

In April, the group announced a first-quarter sales rise of 14.1 per cent to CHF22.8bn (14.5bn), beating analyst expectations and reconfirming its full-year target of a five to six per cent growth rate.

 

Total food and beverage sales for the quarter ending 31 March 2006 was CHF21bn, up 4.4 per cent on 2005's Q1 result of CHF18.6bn.

 

And the appreciation of the Swiss Franc which added 7.6 per cent to sales, coupled with a 1.9 per cent contribution from price increases across the quarter, meant the company was able to comfortably beat analyst estimates.

 

Brabeck said at the time that the outlook for the rest of the year was positive.

 

"Given our higher pricing and the fact that we will be up against a stronger base for the balance of the year, I am able to confirm our guidance for 2006 of organic growth between five and six per cent, as well as a continued improvement of the EBITA margin in constant currencies," he said.

 

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