Summary of Comments to the 

Commodity Futures Trading Commission Regarding the 

Dodd-Frank Wall Street Reform and Consumer Protection Act 

February 16, 2011 
1 

Treasury Mark Magnesen, Sr. Vice President & Treasurer 

Johan Nystedt, Assistant Treasurer 

Procurement Werner Bossard, Vice President-Global Commodity 

Procurement 

Ulrike Bartels-Janssen, Finance Director-Global Commodity 

Procurement 

Government Affairs Brian Folkerts, Vice President-Government Relations 

External Advisors James Cain, Sutherland Asbill & Brennan LLP 

Ed Barron, Russell & Barron 

Ken Ackerman, OFW Law 
2 

Kraft Foods Inc. is one of the World's Largest Consumer Goods Companies 

Annual Revenues of $49 Billion 

Total Assets of $95 Billion and Net Assets of $36 Billion 

Global Reach with over 300 Affiliated Companies Worldwide 

Food Manufacturer and Marketer in 170 Countries 

Operations in over 75 Countries 

Portfolio of Iconic Brands, Including 11 Brands with Revenues over $1 Billion 

Member of the Dow Jones Industrial Average, S&P 500 and Dow Jones 

Sustainability Index 

Incorporated in Virginia and Headquartered in Illinois 
Kraft Foods has two wholly-owned indirect subsidiaries that act as "Centralized 

Hedging Centers" that are relevant to CFTC's proposed rules further defining the 

swap entities and end-user clearing exception 

What 

They Do 

Company 

Benefits 

3 

Centralized Hedging Centers 

Kraft Foods Finance Europe (KFFE) 

Acts as our in-house treasury 

Centralizes global cash management 

Provides foreign exchange services to 

all affiliates 

All currency hedging supported by 

company exposure (i.e., no speculation) 

e Increased efficiency 

Stronger I centralized internal controls 

Lower costs 

Lower exposure to counterparties (i.e., 

banks) due to netting of intercompany 

exposures 

Taloca GmbH 

Centralized procurement unit for 

globally managed commodities 

Centralized commodity hedging 

operation for Kraft Foods affiliates 

outside of North America 

All commodity hedging supported by 

physical needs (i.e., no speculation) 

Increased efficiency 

Stronger I centralized internal controls 

Lower costs 
4 

KFFE and Taloca act on behalf of Kraft Foods affiliates in that they: 

- Structure transactions to hedge or mitigate commercial risks 

- Act on instructions from affiliates and the parent company 

- Maintain a neutral position for themselves (excluding short-term timing differentials) 

Kraft Foods ------------------------------------------------------------------------------. 

I Busine~s -, 

"' Provide coverage 

needs based on 

exposure 

" Provide currency 

hedging instructions 

[ Busir.e-;s-1 

" Provide coverage 

needs based on 

exposure 

.. Provide commodity 

hedging instructions 

,- -KFFE~] 

"' Provides currency outlooks 

" Executes FX transactions using 

derivatives (i.e., forwards, options) 

- Enters into swaps with Business 

- Enters into offsetting swaps with 

traditional swap dealers 

I - Tal~c~- -, 

" Provides commodity outlooks 

" Executes commodity transactions 

using derivatives (eg., futures, 

I 

I 

forwards, options) 1 

I 

- Enters into swaps with Business : 

- Enters into offsetting swaps with: I 

traditional swap dealers : 

I 

I 

-------------------------------------------------------------------------------

External Swap 

Dealers 

.. Act as counterparty to 

Kraft Foods 

transactions 

"' Make currency 

markets 

External Swap 

Dealers 

.. Act as counterparty to 

Kraft Foods 

transactions 

• Make commodity 

markets 
5 

Given the activities performed by our Centralized Hedging Centers ("CHCs") and the 

language in the current draft proposal, we have concerns in three key areas 

Key Areas of Concern 

End-User Clearing Exceptions may not apply to our CHCs 

Major Swap Participant Definition may apply to our CHCs 

• Swap Dealer Definition may apply to our CHCs 

We do not believe it was the CFTC's intention, or in the spirit of the 

Dodd-Frank Act, to restrict CHCs' activities ... we are therefore 

requesting that the proposed rules be clarified 
6 

We believe that non-financial companies' CHCs should not be considered "financial 

entities" and should qualify for the end-user clearing exception 

Cause for 

Concern 

Implications 

Proposed 

Clarifications 

End-User Clearing Exception 

CHCs may be defined as "financial entities" because the derivatives they 

enter into on behalf of the business are "financial in nature"; and 

CHCs may not be deemed end-users, even though they simply act on 

behalf of affiliates to hedge or mitigate commercial risks 

Mandatory exchange clearing would significantly complicate and limit many 

derivatives we use in the normal course of business for risk mitigation 

Foreign exchange transactions with banks 

Commodity transactions 

Basis risk would increase due to inability to tailor risk derivatives 

Higher costs, i.e., due to margin requirements and clearinghouse fees 

Iii CHCs of non-financial companies are excluded from the definition of a 

"financial entity," and are deemed end-users that qualify for the End-User 

Clearing Exception 

Swap transactions entered into as an intermediary or on behalf of affiliates 

qualify for the End-User Clearing Exception 
7 

We believe CHCs should be excluded from the Major Swap Participant definition 

Cause for 

Concern 

Implications 

Proposed 

Clarifications 

Major Swap Participant Definition 

First Test: Internal swaps entered into by CHCs to hedge the 

commercial risk of the entire group could be inappropriately excluded 

from the definition of "hedging or mitigating commercial risk" because 

the CHCs are not acting on their own behalf 

Third Test: CHCs may be classified as "financial entities" and could be 

"highly leveraged" due to intercompany loans 

Margin and capital requirements 

Higher costs 

Additional reporting and compliance 

Transactions by CHCs on behalf of affiliates should qualify as "hedging or 

mitigating commercial risks/' and therefore are excluded from the 

threshold calculation for a Major Swap Participant under the First Test 

CHCs of non-financial companies are excluded from the definition of a 

"financial entity," thereby avoiding the implications of the Third Test 
8 

We believe CHCs should be excluded from the Swap Dealer definition 

Cause for 

Concern 

Implications 

Proposed 

Clarifications 

Swap Dealer Definition 

CHCs may meet the Swap Dealer definition because their activities on 

behalf of their affiliates can be misinterpreted as "accommodating demand 

for swaps from other parties" 

CHCs may inadvertently meet a separate Swap Dealer definition by 

trading for their own accounts, even though they do so only on behalf of 

affiliates to hedge or mitigate their commercial risks 

Margin and capital requirements 

Higher costs 

Additional reporting and compliance 

Adopt the "economic reality" test suggested by the Commission 

As applied to CHCs, the economic reality test shows that their transactions 

simply represent an "allocation of risk" within a corporate group to hedge 

or mitigate commercial risk 

Therefore CHCs should not be inappropriately classified as "swap dealers" 
9 

The use of Centralized Hedging Centers such as Kraft Foods' KFFE and Taloca 

affiliates is a common practice among U.S. non-financial companies 

Centralized Hedging Centers provide many benefits to companies like Kraft 

Foods and consumers, as well as to their counterparties and the financial 

system 

Reduced costs and risk 

Increased global competitiveness 

Job creation and protection 

Lower and less volatile prices for products 

We believe that the Dodd-Frank Act does not intend to interfere with internal 

risk management structures like Centralized Hedging Centers 

We respectfully request that the CFTC clarify that non-financial companies 

such as Kraft Foods and its affiliates are not "Swap Dealers", "Major Swap 

Participants" or "Financial Entities" and qualify for "End-User Exceptions"