U.S. food price increases stick, more to come

By Brad Dorfman

BOCA RATON, Fla, Feb 20 (Reuters) - General Mills and Kellogg have been doing it, ConAgra has started doing it and Kraft hopes to do it more this year than last year.

What are they doing? Raising prices.

As any U.S. shopper knows, food prices have been going up as food companies try to pass on some or all of the increased costs of wheat, energy, cocoa, milk and a host of other items. Those increases led to a 0.7 percent gain in the food component of the Consumer Price Index in January, the greatest increase since an identical one in February of 2007.

Consumers can expect even higher prices going forward.

"As long as these companies all need it and the commodity environment is forcing them ALL to need it, I think you'll have a rational environment where they all tend to play nice and all take pricing at the same time or close to the same time; where none of them are harmed on a market share basis as a result," Edward Jones analyst Matt Arnold said.

Price increases were the hot topic in Boca Raton this week as food industry executives and analysts meet for the annual Consumer Analyst Group of New York conference.

Sara Lee Corp (SLE.N) expects to raise bread prices for the fourth time in 18 months between April and June. Kraft Foods Inc (KFT.N) said it expects price increase to cover what could be another 9 percent increase in commodity costs this year and ConAgra Foods Inc (CAG.N) plans to increase prices on more than 95 percent of its portfolio in March.

"We were just a little bit late to the dance," ConAgra chief Executive Gary Rodkin said during an interview with Reuters.

The executives said they have had little push back from consumers or retailers over the price increases, largely because the soaring price of wheat, oil and other commodities has been so much in the news.

Private-label or store brand competitors have also been raising prices, so the gap between branded products and the lower-priced competition remains the same, executives said.

"Pricing, I think, is a much better lever today than it has been in a while," Kellogg Co (K.N) Chief Executive David Mackay said during a presentation.

Reports by several major food companies in the past week that showed higher prices are sticking and helping mitigate rising commodity costs have spurred a rebound in many food stocks.

The Standard & Poor's U.S. packaged foods index .15GSPFOOD is up 3 percent since last Thursday's close after falling 7.5 percent in the first month and a half of 2008.

At the same time, food companies are counting on budget- strapped consumers to cut back on higher-priced items before switching to cheaper foods.

"You can put off buying a washing machine," Sara Lee Co (SLE.N) Chief Executive Brenda Barnes said during a press briefing. "You could put off buying a new car."