Operating Costs to Pressure Commodity Food Sector

NEW YORK — Fitch Ratings reports that in 2008 higher operating costs will continue to pressure the profitability of commodity food companies as well as companies with commodity-oriented product lines, according to the report "Commodity Foods: High Operating Costs Threaten Profits in 2008."

"Increased pricing will not offset all of the higher costs for industry participants," said Carla Norfleet Taylor, director of Fitch Ratings. "Despite higher-than-average food cost inflation, commodity-oriented businesses have less pricing power than packaged food companies due to the lack of significant differentiation in their products."

Fitch believes strong foreign grain exports and demand for corn will continue to encourage higher feed grain prices, which leads to difficulties for Tyson Foods and Pilgrim’s Pride as corn and soybean meal represent up to 40 percent of variable costs for these companies.

Raw milk prices also will be affected as high feed costs for cattle and strong dairy export demand will place pressure on costs for companies such as Dean Foods.

Fresh produce companies also will face difficulties as high fuel prices and shipping costs will impact Dole Foods and Chiquita Brands International as they source a large amount of their products from Latin and Central America.

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