Global Food Price Rally Will Drive Investment, Nestle Says

March 19 (Bloomberg) -- Nestle SA Chief Executive Officer Paul Bulcke talks about agricultural commodities and the company's business strategy. Bulcke said rising agricultural prices may spur increased investment in research and infrastructure, helping lift farm yields and output to feed a larger and richer global population. He spoke yesterday in Kuala Lumpur with Bloomberg's Ranjeetha Pakiam. (Source: Bloomberg)

Rising agricultural prices may spur increased investment in research and infrastructure, helping lift farm yields and output to feed a larger and richer global population, according to Nestle SA (NESN), the biggest food company.

“Prices are getting to a level that may result in an effect that is positive for food production,” Chief Executive Officer Paul Bulcke said in an interview on Bloomberg Television. “People are motivated again to be in agriculture.”

Global food prices rose for a second month in February on higher costs for cereals, cooking oils and sugar, according to a 55-item gauge tracked by the United NationsFood and Agriculture Organization. Costs may remain near current levels in the coming months as demand absorbs increased supply, Abdolreza Abbassian, a senior FAO economist, said on March 8.

Food-price volatility has increased as production isn’t growing at the same pace as demand, cutting stockpiles, Bulcke said in Kuala Lumpur. Raw-material costs for Vevey, Switzerland- based Nestle such as coffee and sugar were expected to continue to climb this year, although at a slower pace than 2011, he said.

The FAO’s World Food Price Index (FAOFOODI) rallied 20 percent in 2009 and a further 26 percent in 2010 as the global economy recovered from recession. The gauge, which was at 215.27 last month, reached a record 237.92 in February last year. A decade ago, it was at 88.3, according to data tracked by Bloomberg.

‘More People’

Prices are “going up from a low base, so whatever that goes up, it looks like it’s doubling,” Bulcke said yesterday. “We’re going to have a world that is going to have 2 to 3 billion more people in the next few years.”

Global food output must rise 70 percent by 2050 as the world population grows to 9.3 billion from 7 billion, and wealthier consumers eat more meat, according to the FAO. The global trade in agriculture may climb 43 percent to more than $1 trillion by 2020 on rising emerging-markets demand, according to a projection from the U.S. Department of Agriculture last July.

Asian demand will grow as the middle class expands, making it a key market for products such as Milo, a chocolate-malt drink, and Maggi noodles, said Bulcke, who was in the country for events to mark the centenary of Nestle Malaysia Bhd.

Raw-material inflation will probably be less than 5 percent this year, Bulcke said, reiterating a forecast made by Chief Financial Officer Jim Singh on Feb. 16. Costs were being cut by operating more efficiently, Bulcke said.

Stock in the maker of Kitkat chocolate bars has rallied 11 percent in the past year to 56.75 Swiss francs today, valuing the company at 187.4 billion francs ($204.5 billion). Of the 40 analysts’ calls tracked by Bloomberg, 17 are “buy” recommendations, with 20 “holds” and three “sells.”

Nestle and Danone SA made first-round bids for Pfizer Inc. (PFE)’s baby-formula unit, which may fetch as much as $10.5 billion, people with knowledge of the process said in January. While Bulcke declined to comment on Pfizer, he said that Nestle was open to so-called “bolt-on” acquisitions that complemented existing operations.

To contact the reporter on this story: Ranjeetha Pakiam in Kuala Lumpur at rpakiam@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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