Judi M. Rossetti CFA/CPA, +1-312-368-2077

Wesley Moultrie II, CPA +1-312-368-3186

Carla Norfleet Taylor, CFA +1-312-368-3195 (Chicago)

Media Relations:

Cindy Stoller, +1-212-908-0526 (New York)

cindy.stoller@fitchratings.com

The advantages gained in the weak economy are likely to outweigh the drawbacks for United States-based investment grade packaged food companies in 2009. The recent inclination for consumers to eat at home more often is positive for these companies. Packaged foods are a good value, even with recent price increases. Elevated input cost inflation over the past two years led packaged food companies to raise prices multiple times. Input cost inflation in 2009 is a mixed picture, since it takes at least several months for lower costs to flow through earnings due to the timing of hedges and contracts. Therefore, overall input cost inflation in 2009 is likely to exceed 2008 inflation, at least in the first half of the year. As the year progresses, packaged food companies may see some benefit from lower grain-related and energy costs.

Packaged food companies typically use commodity risk management to reduce earnings volatility and increase earnings predictability. Medium-to-large packaged food companies have diversified product portfolios and relatively steady consumption patterns for their products. These companies have maintained adequate liquidity and access to capital during the current instability in the credit markets. They are expected to exhibit growth in operating earnings and cash flow, as well as discretionary free cash flow. Therefore, ratings and outlooks for most companies in this sector are likely to remain stable in 2009.

CROP OUTLOOKS: PRICES BECOME MORE REFLECTIVE OF SUPPLY/DEMAND FUNDAMENTALS

The U.S. Department of Agriculture (USDA) is expecting a third consecutive year of farm prices for wheat, corn, soybeans, soybean meal and oil to be above their 10-year averages. Both 2007/08 and 2008/09 prices are substantially above the averages. While these commodities spiked up through mid-2008 driven by strong demand, rising oil prices, speculation, and adverse weather, prices have fallen dramatically since mid-year.

Expectations for large crop production and plummeting oil prices have contributed to the price declines. The USDA forecasts U.S. corn production at 12 billion bushels, 8% below last year. Both corn production and yields are currently forecast to be the second highest on record. Soybean production, at 2.92 billion bushels, is forecast to be up 9% from last year for the fourth largest production on record. U.S. wheat production is forecast at 2.5 billion bushels. With lower U.S. wheat exports due to record global wheat production, ending stocks are expected to be replenished and prices have moderated.

FOOD PRICE INFLATION: MODERATION SEEN FROM 2008 LEVELS

According to the USDA's Economic Research Service (ERS), the Consumer Price Index (CPI) for all food is forecast to rise 4.0- 5.0% in 2009. Both 'Food away from home' and 'Food at home' are forecast to rise at this same pace in 2009. These above-average changes in food price indices are on top of a forecast CPI increase of 5.5%-6.5% for 'Food at home' in 2008 and a final 2007 increase of 4.2%. The highest price increases for 2008 are for eggs, fats and oils, cereals and bakery products, and dairy products. Beef, pork and poultry prices are expected to see the greatest prices increases in 2009, ranging from 5%-7%. While feed costs rose dramatically through the first half of 2008, it has taken time for the feed cost increases to materialize in the form of higher protein prices at retail. Prices for the categories that rose fastest in 2008 are expected to moderate somewhat in 2009 with the recent drops in commodity prices.

CONSUMER IMPACT: PACKAGED FOOD COMPANIES BENEFIT FROM SHIFT IN SPENDING PATTERNS

Back-to-back years of soaring food price inflation, along with high oil prices that had an impact on transportation, manufacturing, and packaging costs, have led the packaged food companies to take several rounds of price increases. Although food is a non- discretionary purchase, consumers have choices about where to spend their food dollars and how much to pull back on total food spending. Consumers have reduced spending at restaurants, particularly casual diners, and are re-allocating that spending to food eaten at home. Packaged food companies have benefited, and are expected to continue to benefit, from this shift in spending patterns.