### Sub-Industry Outlook Stock Performance

Our fundamental outlook for the S&P Packaged Foods & Meats sub-industry is neutral. Although we expect retail food prices to be higher in 2010, we think that the extent of the rise will be moderate enough for packaged food companies' U.S. volumes to be relatively flat. With improved consumer demand, and benefits from restructuring and other cost-saving activities, we expect industry profit margins to widen somewhat in 2010.

Overall, in a relatively weak economic environment, we believe that underlying demand for food and beverages holds up relatively well: consumers are less likely to sharply reduce or defer such spending than they are for other products. However, in an effort to cut costs, we have seen a shift toward consumers trading down to some less expensive products, and toward more eating at home. We think that the shift toward eating at home has included purchases of relatively low-cost takeout food, such as pizza, at the expense of grocery store sales. Prepared takeout items feed into consumers' need for convenience, with less time needed in the kitchen.

In our view, anticipation of large U.S. corn and soybean crops in the 2009-10 marketing year has eased concerns about higher farm prices ahead. However, we think that some packaged food companies had already locked in prices on a portion of their expected future crop needs. Overall, we think agricultural commodity cost outlook for 2010 is mixed, including the prospect that sugar, dairy, and coffee prices will be significantly higher than they were in 2009. We believe that the U.S. will generally have adequate crop supplies in the year ahead, and that U.S. farmers will continue to be major suppliers to world agricultural export markets.

Longer term, we expect the packaged food industry to continue to focus on consumer lifestyles and tastes, including both opportunities in developing international markets and the interests and needs of an aging U.S. population. We anticipate industry growth opportunities will include further introduction and distribution of products that appeal to consumers' interest in healthier eating. We believe that rising standards of living and increasing world trade liberalization should provide U.S. packaged food companies with opportunities for longer-term growth.

Year to date through January 22, the S&P Packaged Foods & Meat Index rose 0.9%, compared to a 1.9% decline for the S&P 1500 Index. In 2009, the S&P Packaged Foods & Meats Index was up 14.8%, versus a 24.3% rise for the S&P 1500.

--Tom Graves, CFA GICS Sector:Consumer Staples Sub-Industry: Packaged Foods & Meats

Based on S&P 1500 Indexes Month-end Price Performance as of 01/29/10

2005 2006 2007 2008 2009 2010 140

120

100

80

60

40

20

0

Sub-Industry Sector S&P 1500

NOTE:All Sector & Sub-Industry information is based on the Global Industry Classification Standard (GICS) Stock Report | Feb 6, 2010 | NYSE Symbol: KFT 

# Kraft Foods'A'

Sub-Industry : Packaged Foods & Meats Peer Group*: Very Large Food Manufacturers

Peer Group Stock Symbol Stk.Mkt.

Cap. (Mil. $) Recent

Stock Price($) 52

Week High/Low($) Beta Yield (%) P/E Ratio Fair

Value Calc.($) Quality

Ranking S&P

IQ %ile Return on Revenue (%) LTD to

Cap (%)
Kraft Foods'A' KFT 41,973 28.44 30.10/20.81 0.59 4.1 17 27.00 NR 70 4.4 44.7 Cadbury plc ADR CBY 17,743 52.34 56.34/27.58 0.84 1.9 20 NA NR 29 6.8 22.1 ConAgra Foods CAG 10,123 22.83 23.95/14.00 0.75 3.5 13 23.80 A- 98 5.1 42.0 Danone ADR DANOY 33,545 10.95 13.05/8.51 0.76 3.0 14 11.90 NR 25 6.9 55.0 Nestle S A ADS NSRGY 162,380 45.15 50.19/29.12 0.52 2.3 10 NA NR 88 16.4 9.3 Sara Lee Corp SLE 8,717 12.50 12.61/6.80 0.92 3.5 11 12.90 B 94 2.8 55.5 Unilever ADS UL 80,749 28.84 32.41/16.95 0.76 2.3 17 NA NR 93 12.4 29.1 Unilever N.V. UN 81,141 28.98 33.10/16.91 0.79 1.3 17 28.50 NR 76 12.4 29.5

NA-Not Available NM-Not Meaningful NR-Not Rated. *For Peer Groups with more than 15 companies or stocks, selection of issues is based on market capitalization.

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