x Abu Dhabi, UAEFriday 21 July 2017

High food prices here to stay, says Nestle's Bulcke

Nestle, the world's largest food company, says high food costs are here to stay, but they could spur greater research and development into the world's agricultural needs.

The head of Nestle, the world's largest food company, warns the world will have to learn to live with higher commodity prices, saying chronic underinvestment in agriculture is to blame.

Although explosive growth in emerging markets would help the company manage the effect of food price inflation, such concerns would become more acute if growth were to slow down, said Paul Bulcke, Nestle's chief executive, at an investor day in Vevey, Switzerland.

"Raw material prices are here to stay," he said. "Don't think you can sit it out."

However, the net effect of higher commodity prices, especially in agriculture, would be greater investment and a spur to research and development, Mr Bulcke added.

"Headwinds in raw material costs … are preconditions to have food security in the future." Agriculture accounted for only 1.5 per cent of total research and development spending worldwide, he said. "Agriculture is something that had been badly treated. Raw materials went down during the last 30 to 40 years."

Food costs have soared during the past 12 months, with the UN food and agriculture organisation's Food Price Index hitting 238 points in February, the highest level since records began in 1990.

The index has since settled at 232 points for last month, but food prices remain higher than at any point since 2008, the previous peak.

Unrest in parts of the Middle East and North Africa, some of which has been attributed to the rise in food prices, also took its toll on Nestle.

The company closed some of its factories in Egypt, where it employs 2,800 staff, during the final week of the country's revolution early this year, said Frits van Dijk, the company's executive vice president and zone director for Asia, Oceania, Africa and Middle East.

"In spite in all of this, Egypt is a market that has shown tremendous growth since the revolution," he said. Nestle is increasing production in the Middle East, having opened a new regional headquarters and production plant in Dubai in December.

At the time, the company said it planned to invest US$400 million (Dh1.46 billion) in the region during the next three years.