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Kraft cuts Maxwell House list price

August 5, 2005

By Jeff Coelho

NEW YORK (Reuters) – Kraft Foods Inc. has cut the
list price for its leading coffee brand Maxwell House by 5
percent, becoming the second major U.S. roaster this week to
respond to falling costs and prices in the commodities market.

“Effective yesterday, we announced a list price decline on
our Maxwell House coffee. It’s the lower commodity costs for
green coffee,” Pat Riso, a Kraft spokeswoman, told Reuters on
Friday.

Kraft reduced the list price it sells to supermarkets and
store chains by 13 cents to $2.44 per 13-ounce equivalent can,
or a 5-percent decrease. Kraft last changed its list price on
March 12, hiking it about 12 percent from $2.29.

The widely anticipated move by Kraft, the largest North
American food manufacturer, follows a 5-percent reduction in
the list price of competitor coffee brand Folgers, owned by
Procter & Gamble Co. .

After P&G’s announcement on Tuesday, analysts said they
were expecting the other big roasters such as Kraft and Sara
Lee Corp. , which carries the Chock full o’Nuts brand,
to follow suit.

VOLATILE PRICES

Despite more and more Americans consuming coffee, the
benchmark price of the washed-arabica bean trading on the New
York Board of Trade has recently fallen about 33 percent since
peaking at its highest level in more than five years in March.

The NYBOT’s front-month arabica contract for September
delivery hit an 8-month low of 96.15 cents a lb on July
19, well below the peak of $1.4425 per lb scaled on March 11.

September arabica futures were trading at $1.0580 a lb
Friday morning.

Roasters like Kraft and P&G use the front-month futures
contract on NYBOT as a benchmark to set their prices, and the
13-ounce equivalent can is a measure for setting prices for
shipments of various sizes to supermarkets and store chains.

In July, the International Coffee Organization forecast the
global coffee harvest would shrink 5 percent to 105 million
60-kg bags in the 2005/06 season because of lower output in
such key production countries as Brazil, Vietnam and Indonesia.

Recent estimates of world consumption indicated a total of
114.4 million bags for calendar year 2004, up from 111.8
million bags in 2003, it said.

In a recent survey, the National Coffee Association of USA
said that U.S. daily consumption of coffee rose to 53 percent
of the population from 49 percent in its 2004 survey. NCA
attributed that increase to a surge in coffee drinkers who are
18 to 24 years of age.

However, futures prices have been vulnerable to
managed-money funds which held positions as a hedge against
financial markets.




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