Kraft 2010 Annual Report Download - page 15

Disputes with significant suppliers, including regarding pricing or performance, could adversely affect our ability to supply products to our customers and
could materially and adversely affect our product sales, financial condition and results of operations.
Commodity and other input prices are volatile and may rise significantly.
We purchase large quantities of commodities, including dairy, coffee, cocoa, wheat, corn products, soybean and vegetable oils, nuts, meat products, and sugar
and other sweeteners. In addition, we purchase and use significant quantities of plastic, glass and cardboard to package our products, and natural gas to
operate our factories and warehouses. Prices for commodities, other supplies and energy are volatile and can fluctuate due to conditions that are difficult to
predict, including global competition for resources, currency fluctuations, severe weather, consumer demand and changes in governmental trade and
agricultural programs. For example, unusually adverse weather conditions, such as the heat wave in the grain growing regions of Russia and Ukraine and
recent severe drought in the grain growing regions of China, have contributed to rising wheat and corn costs in 2010 and we expect such conditions to
continue in 2011. For 2010, our commodity costs were approximately $1.0 billion higher than 2009. Although we monitor our exposure to commodity prices
as an integral part of our overall risk management program, and seek to hedge against price increases, continued volatility in the prices of commodities and
other supplies we purchase could increase the costs of our products, and our profitability could suffer. Moreover, price increases to cover these increased costs
may result in lower sales volumes. If we are not successful in our hedging activities, or if we are unable to price to cover increased costs, then commodity and
other input price volatility or increases could materially and adversely affect our financial condition and results of operations.
Changes in regulations could increase our costs and affect our profitability.
Our activities in the United States and around the world are highly regulated and subject to government oversight. Various federal, state, provincial and local
laws and regulations govern food production and marketing, as well as licensing, trade, tax and environmental matters. Governing bodies regularly issue new
regulations and changes to existing regulations. Our need to comply with new or revised regulations or their interpretation and application, including proposed
requirements designed to enhance food safety or to regulate imported ingredients, could materially and adversely affect our product sales, financial condition
and results of operations.
Legal claims or other regulatory enforcement actions could subject us to civil and criminal penalties that affect our product sales, reputation and
profitability.
We are a large food company that operates in a highly regulated, highly competitive environment with growing retailer power and a constantly evolving legal
and regulatory framework around the world. Consequently, we are subject to heightened risk of legal claims or other regulatory enforcement actions.
Although we have implemented policies and procedures designed to ensure compliance with existing laws and regulations, there can be no assurance that our
employees, contractors or agents will not violate our policies and procedures. Moreover, the failure to maintain effective control environment processes could
lead to violations, unintentional or otherwise, of laws and regulations. Legal claims or regulatory enforcement actions arising out of our failure or alleged
failure to comply with applicable laws and regulations could subject us to civil and criminal penalties that could materially and adversely affect our product
sales, reputation and profitability.
Product recalls or other product liability claims could materially and adversely affect us.
Selling products for human consumption involves inherent risks. We could decide to, or be required to recall products due to suspected or confirmed product
contamination, spoilage or other adulteration, product misbranding or product tampering. Any of these events could adversely affect our reputation and
product sales, financial condition or results of operations.
We may also suffer losses if our products or operations violate applicable laws or regulations, or if our products cause injury, illness or death. In addition, our
marketing could be the target of claims of false or deceptive advertising or other criticism. A significant product liability or other legal judgment or a related
regulatory enforcement action against us, or a widespread product recall, may materially and adversely affect our profitability. Moreover, even if a product
liability or consumer fraud claim is unsuccessful, has no merit or is not pursued, the negative publicity surrounding assertions against our products or
processes could materially and adversely affect our product sales, financial condition and results of operations.
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