By Jenny Wiggins
Published: February 22 2008 02:00 | Last updated: February 22 2008 02:00
Peter Brabeck, Nestlé's chairman and chief executive, yesterday warned the food industry would need to fight the biofuel industry for access to arable land as the world runs short of water.
"We will not find sufficient water to produce all the crops . . . there will be a fierce fight for arable land," he told the Financial Times after Nestlé reported strong organic sales growth of 7.4 per cent for 2007.
Nestlé shares closed up 3.5 per cent at SFr482.5, the biggest rise since August, after the Swiss company said it had withstood record-high commodity costs by lifting its prices about 3 per cent last year - double the annual rate at which it typically raises prices. The group's net profit rose 15 per cent to SFr10.6bn ($9.8bn).
Nestlé investors were also reassured to hear James Singh, Nestlé's chief financial officer, confirm that the company had no exposure to "the current credit crisis" or subprime mortgages.
Mr Brabeck said the food industry would remain in competition with the biofuels industry for land as rapid global economic development increased demand for food. "The consumption habit changes in emerging markets will not revert," he said, adding that while he expected global food prices to "level" this year, they were likely to continue rising over the long term. "I think we will have to live with more food [price] inflation."
But Nestlé's raw material costs are expected to moderate this year as commodity markets become less speculative.
"Our basket line is flattening out and there is the possibility it might even come down a bit," Mr Brabeck said, adding that he did not expect milk prices - Nestlé`s biggest commodity cost - to return to last year's record highs of about $5,400 per tonne.
"That was the most difficult [commodity price rise] for us to adjust to," he said, adding that as hedge fund speculators have moved out of the global milk market, prices have fallen to about $3,000.
Mr Brabeck said Nestlé would continue to keep raising prices by about 3 per cent at the start of 2008 but that it expected to raise them at a slower rate by the end of the year.
Mr Brabeck claimed Nestlé's transformation into a "research and development and health and wellness company" from a "mere food company" enabled it to add value to its products, and charge more for them.
"We are much less dependent on commodity costs than we were before," he said.
Nestlé has disposed of what it calls "commodity" food businesses such as UHT milk, frozen vegetables and dried pasta in recent years and concentrated on developing brands such as Nespresso.
"There is a huge difference if you are selling coffee beans or if you are selling Nespresso," Mr Brabeck said.
Nespresso, a coffee club that chose American actor George Clooney to be its spokesman, sells little "pods" of coffee in brightly coloured packets online to members who use them to make espressos at home.
Nespresso has been an enormous success for Nestlé. Sales rose 40 per cent last year and are expected to hit SFr2bn this year, and the group now has some 120 specialist Nespresso stores globally.
Mr Brabeck will hand over his job as chief executive to Paul Bulcke, who has been running Nestlé's Americas business, in April, but will retain his chairmanship of the company.
As chairman, he will consider whether Nestlé should sell its stakes in Alcon and L'Oréal. Yesterday, he said Nestlé no longer needed its stake in Alcon as a financial asset, but that deciding what to do with L'Oréal was more complicated because the French group had the potential to remain a good business partner in the future if Nestlé expands into the "personal care" business.
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