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NEWS ADMIN

NULL

DATE

13/12/2005

NEWS PROVIDER

Mahamad Rodzi Abdul Ghani

NEWS SOURCE

Financial Times

CATEGORY

HEADLINE

Kellogg's Trans-Fat Tradeoff

12/12/05 (Financial Times)  -  With a new Food and Drug Administration labeling guideline just weeks away, Kellogg (NYSE: K - News) disclosed Friday that it will replace oils high in trans fatty acids in some of its products with a new soy oil that promises to cut or eliminate trans fat content. The initiative is a positive for consumer health, since trans fats are implicated in heart disease. Nevertheless, the move may have some cost to Kellogg.

Kellogg's plan is to initially use Vistive, a soybean oil derived from agricultural technology giant Monsanto (NYSE: MON - News), to cut trans fats. Unfortunately, the supply of the new oil is already tight, and Kellogg is going to need a lot of it. Kellogg is encouraging additional planting of Vistive soy as well as increased production of Nutrium, a competing product developed by Bunge (NYSE: BG - News) and DuPont (NYSE: DD - News), that Kellogg plans to use in the future.

Kellogg's decision to use the soy oil definitely has advantages. Unlike palm oil, which some food makers are using, the new oil doesn't raise saturated fat levels as it cuts trans fats. Perhaps more importantly, the new oil doesn't significantly alter the taste of foods.

However, the switch could also constrain Kellogg's ability to sell internationally. Although Vistive was produced using conventional breeding techniques, it does contain the Roundup Ready trait, as does Nutrium. This makes both Vistive and Nutrium genetically modified (GM) products, and many Europeans, as well as people in other nations, remain squeamish about GM foods.

It's important to point out that the introduction of the new oil does not seem to threaten Kellogg's current sales in Europe. The lion's share of revenue there comes from cereals, and since Kellogg's cereals do not contain trans fats, there is no need to use the new soy oil in these products.

Still, should Kellogg want to expand sales of, say, Keebler cookies into the continent, treats containing the new oil would be labeled as GM foods under European regulations -- a definite turn-off for some buyers. Alternatively, Kellogg could produce special cookies for Europe with unhealthy non-GM oils. But this would be costly and would put the company in the strange position of selling Europeans a less healthy product to satisfy concerns over GM foods.

Kellogg's plan to use Vistive and Nutrium should be a plus for its competitive position in the U.S. But the decision also may be a drag on international expansion.

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Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.