Feb. 11 (Bloomberg) -- Nestle SA, the world's largest food company, Kraft Foods Inc. and Mars Inc. were raided as part of a probe into chocolate prices by the German Federal Cartel Office.

The regulator searched seven chocolate makers on Feb. 7, for evidence that the companies fixed the prices of their products, Cartel Office spokeswoman Silke Kaul said in an interview today.

Chocolate makers have explained price increases by saying they were necessary to cover surging costs for cocoa, which has gained 32 percent in the past year, and sugar, up 22 percent. Nestle, which declined to comment on the allegations today, has estimated its costs for milk rose by a third to 6 billion francs ($5.5 billion) in 2007.

``The sector is quite consolidated, and the price rises were quite pronounced,'' said Marco Gulpers, an analyst at ING Wholesale Banking who has a ``buy'' rating on Nestle. ``There are a lot of reasons why these companies need to raise prices to protect their margins.''

The probes come three days before Valentine's Day, one of the peak holidays for chocolate sales. U.S. retail sales of the sweets are expected to exceed $323 million this week, according to Nielsen estimates.

German antitrust fines can't exceed 10 percent of a company's sales in the year preceding a ruling, according to the Justice Ministry's Web site.

Nestle Searched

Canadian authorities said in November they were investigating whether companies colluded to set the price of chocolate bars. U.S. antitrust regulators also made inquiries about pricing practices in the industry, Mars and Nestle said in December.

Nestle's Frankfurt office was searched Feb. 7, Francois Perroud, a spokesman for the Vevey, Switzerland-based company said today. He declined to comment further on the probe.

Kraft's spokeswoman Silke Troesch said that the company was also searched. Mars had its offices visited on the same day, said Sabine Hansult, a spokeswoman for the maker of M&M candies. Both declined to comment other than to say they are cooperating with the investigation.

Alfred Ritter GmbH & Co. KG was also among the companies searched on Feb. 7, said spokeswoman Petra Fix. The Waldenbuch, Germany-based company won't comment as long as the probe is pending, she said.

To contact the reporters on this story: Thomas Mulier in Geneva at tmulier@bloomberg.net; Karin Matussek in Berlin at kmatussek@bloomberg.net

Last Updated: February 11, 2008 11:25 EST