General Mills responds to raw material price rises

Related tags Material China

US food giant General Mills is to increase wholesale prices on
several categories of foods in response to rising raw materials
costs. The increase is thought to be between two to nine per cent
on selected lines.

Goods affected include Progresso soups, some frozen breakfast items, yoghurt, and Totino's snack foods.

General Mills​, a business which reported $11.5 billion in net sales last year, would not specify the exact timing of the increases, but said it had already informed trade customers. "Costs have risen sharply, including energy and ingredients, leading to higher input costs of producing our products,"​ General Mills spokeswoman Marybeth Thorsgaard told news agency Reuters.

A March 2004 report from Merrill Lynch noted that "there is significant inflation in raw material prices in the food industry".​Some of the world's biggest food companies, including Kraft Foods, Bob Evans Farms and Birds Eye Foods. have also indicated in recent months that they are taking measures to pass on soaring dairy, soybean, corn, and meat prices to consumers.

In a recent report, consultancy firm Deloitte​ pointed to what it calls a "synchronised global upturn" as a major cause of these raw material price rises. Demand, said Deloitte, is rising around the world, including Japan, China and parts of Europe.

As businesses and consumers buy more, they are bidding up prices for various commodities and inputs. China has been a major cause for the rising prices, and some fear that the trend will be exacerbated in the near future.

The rapid industrialisation of China requires large amounts of imported steel and other basic commodities to fuel its growth. Strong demand has bid up global prices for these raw materials. Companies around the globe are feeling the bite of these rising global prices as a result.

Economic growth in China has been coupled with a rise in the cost of living there. China, which experienced several years of deflation, is seeing rising prices in 2004. Many believe that some of China's exports will eventually be priced higher as a result of the inflation there, and this scenario will only add to global inflationary pressures.

Agribusinesses are benefiting from the rising prices for numerous products, including eggs, milk, beef, wheat, corn and soybeans. In the US, soybean futures prices jumped to a 15-year high in early 2004, partly due to weather-related problems. It is these higher prices from agribusinesses, said Deloitte, which are negatively impacting costs for food processors.

Wal-Mart and other retailers have recently acknowledged that raw material prices are rising. According to the Deloitte report, the retailers reportedly are allowing cost-justified increases from their suppliers. But not all price hikes are being accepted, and the industry is struggling with ways to offset these rising costs, partly through productivity gains.

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