Working to Build a Better World

Kraft foods responsibility report

Every day, around the world…

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we’re working to make a delicious difference.

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Working to build a better World

through actions large and small, global and local, we’re doing what’s right and holding ourselves accountable. by doing our part and acting with care today, we’re helping to build a better world for tomorrow:

a world where there’s enough food for all. Where everyone has access to it. and it’s nourishing, affordable and delicious.

a world where the air and water are cleaner. Where the land is managed wisely. and where natural resources are treated with respect.

a world where ethics and profit are not mutually exclusive. and where everyone is treated fairly.

We’re making good progress, but there is much more to be done. and we can’t do it alone. this is a journey and we need your help. We invite you to read about our efforts in the pages that follow and accompany us on our journey.

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Kraft foods Chairman and Ceo irene rosenfeld rolls up her sleeves at the Community foodbank of new Jersey, U.s., alongside employee Mark barash and more than 12,000 other employee volunteers worldwide during Make a delicious difference Week in 2009.

i always tell our employees that regardless of your role, you must make a positive difference. that means the company must be better off for your having been there. i feel the same about our organization as a whole. as the world’s second largest food company, there are many ways we can make a difference. and we’re actively pursuing them. from increasing sustainable agriculture to reducing product packaging to providing affordable nutrition. We’re doing our part and leading the way.

as a public company, Kraft foods must delight our consumers and our customers so that we can deliver value for our shareholders. but successful companies, like Kraft foods and Cadbury, makers of brands people have loved for more than a hundred years, know it takes more than delivering the numbers, quarter after quarter—despite how important that is.

to build and sustain brands people love and trust, one must focus—not only on today but also on tomorrow. it’s not easy…but balancing the short and long term is key to delivering sustainable, profitable growth—growth that is good for our shareholders but also good for our consumers, our employees, our business partners, the communities where we live and work, and the planet we inhabit.

this report is designed to provide the core information we think you’d want to know about the seven key areas that embody our economic, social and environmental responsibility…what we do, why we do it and how we’re getting on.

you can print it if you’d like. but, to save trees and keep it relevant and timely, we’re releasing it online. We’ve also grouped the information in sections so that you can easily search for exactly what you want—whether it’s our progress on reducing waste or our position on advertising to children.

at present, this report covers only our legacy Kraft foods business. but, following our acquisition of Cadbury in february, we’re working hard to integrate our businesses and consolidate our information. and we’ll update this report as we move along. so, keep checking back.

inspiring trust takes hard work. our track record has and will continue to demonstrate our commitment.

irene b. rosenfeld Chairman and Chief executive officer, Kraft foods april 2010

Message from our Chairman and Chief executive officer

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Message froM oUr ChairMan and Chief exeCUtive offiCer

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our efforts and results are captured under the following seven headings:

seven areas of ConCentration

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indexat-a-glanCe

* statistics regarding waste, packaging, greenhouse gases, energy, water use, and transportation are indexed to net sales and based on a 2005 baseline.

at-a-glance

Women make up 35% of management worldwide.Currently, 43% of our salaried employees are women.

Over 5,000 better-for-you products launched since 2005.roughly 30% of our portfolio.

We’ve cut our packaging by over

We’ve cut greenhouse gas emissions and energy use, respectively, by

We’re the largest purchaser of coffee and cacao beans from rainforest alliance Certified™ farms.

greenhouse gases

17%*p 15%*penergy use

174 million pounds*

(nearly 79,000 metric tons)

We’ve cut

50 million miles*

(80 million kilometers) from our global transportation network.

We’ve reduced water consumption by

We’ve reduced our waste by

2005 2006 2007 2008 2009

Kraft Foods coffee and cacao bean buying volumes (metric tons)• coffee • cacao

p32%* p30%*

in the U.s. alone, between 1999 and 2009, we’ve provided over

1 billion servings of food.

34,055

7,100

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“Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”United nations–sponsored brundtland Commission report

sustainability is about “meeting the needs of the present without compromising the ability of future generations to meet their own needs.” it’s about conducting business in a way that is environmentally, socially and economically responsible. it’s about living today, while being mindful of tomorrow.

as a food company, we’re especially dependent on the earth for the raw materials we use every day to make quality products for our consumers. and we need to do our part to ensure that the earth’s resources are properly managed.

the demands being placed on the planet are growing. experts project that the world’s population is going to reach 9.0 billion by 2050. and standards of living are expanding in much of the developing world. this all puts incremental strain on the planet. in some areas, experts find that natural resources are being depleted faster than the earth can replenish them. Clean water and arable land are becoming more and more scarce.

Change is necessary. and we realize we have a role to play. We are changing the way we conduct our business both directly and indirectly to become more sustainable.

MaKing sUstainability a Way of doing bUsiness

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Sustainability Wheel

• six areas of focus • design sustainability in upfront • Continuously improve going forward

the environmental, societal and economic challenges that face our planet require collaboration and cooperation. so we’re working with peer companies, governments, nongovernmental organizations, farmers, suppliers, consumers and others to find innovative solutions.

Six areas of focus sustainability is a companywide priority. to guide us, we’ve developed the “sustainability Wheel.” it represents our focus areas and serves as the framework and our intention for building sustainability into everything we do. We’re con-centrating on the issues most relevant to our business and the areas where our support can make a difference: agricultural commodities, packaging, energy, water, waste, and transportation and distribution. We use the wheel to measure and reward improvement, and to continually advance our efforts throughout our system.

to keep us on track, we set aggressive goals. Measuring against total production and using 2005 as our base year, by year-end 2011, we plan to:

• reduce energy use in our manufacturing plants by 25 percent

• reduce energy-related carbon dioxide emissions in our manufacturing plants by 25 percent

• reduce water consumption in our manufacturing plants by 15 percent

• reduce waste at our manufacturing plants by 15 percent

• eliminate 150 million pounds (68,000 metric tons) of packaging material.

as we’ve increased our sustainability efforts, we’ve become more transparent. Measuring our impact on the environment helps us evaluate our progress and determine where to consider improvements and adjustments. that’s why we ask independent, third-party companies to verify our progress.

our environmental performance indicators (epis) for our manufacturing facilities are verified by Environmental Resources Management (ERM), a global environmental management and technical consulting firm.

We also use environmental management systems in our facilities worldwide. these systems comport with widely recognized standards and guidelines issued by the U.s. environmental protection agency and the ISO 14001 Environmental Management standard.

design

TRANSPORTATION/DISTRIBUTION

WASTE

WATER ENERGY

PACKAGING

AGRICULTURALCOMMODITIES

continuous improvement

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in 2009, the environmental management systems for 134 of Kraft foods’ manufacturing facilities around the world met the requirements of iso 14001, and we’re working toward 100 percent compliance throughout our network. the iso 14001 standard is a premier benchmark for management tools to help minimize negative environmental impacts. iso 14001 certification goes beyond compliance, aligning locations to the same overall sustainability goals and sets the stage for their continuous improvement.

Growing our commitment to sustainable agriculture for Kraft foods, sustainability starts at the farm. sustainable agriculture promotes the long-term viability of crops, the preservation of fertile soil, the economic well-being of farmers and farming communities, and the health of ecosystems. We’re working with partners around the world to increase our support of sustainable farming.

one of our principal collaborators is the Rainforest Alliance. We started working with the rainforest alliance in 2003 on coffee and that year purchased nearly 2,500 metric tons (more than 5.5 million pounds). since then we have increased our purchases twelvefold.

in 2009, we bought more than 34,000 metric  tons (more than 75 million pounds) of coffee from rainforest alliance Certified™ farms. that’s a 15 percent increase over 2008. the rainforest alliance Certified coffee we bought in 2009 helped support 300,000 farm workers tending 60,000 hectares (148,000 acres) in 12 countries in africa, Central america, south america and southeast asia.

We currently have nine coffee brands in north america and europe that carry the rainforest alliance Certified seal, and customers have responded enthusiastically. in the UK, our Kenco brand generated double-digit revenue growth. and in sweden, sales of instant and espresso coffee doubled for one of our “away from home” customers.

agriCUltUral CoMModities

“ We are all responsible for ensuring the long-term health of our planet. As the leading purchaser of coffee and cocoa from Rainforest Alliance Certified™ farms, Kraft Foods is doing its part by helping farmers earn a good living as they conserve wildlife habitats and the vital natural resources on which we all depend.”

Tensie Whelan president, the rainforest alliance

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in 2005, we expanded our work with rainforest alliance to cocoa. in 2007, we purchased our first certified beans to use in a portion of our Côte d’Or premium chocolate line. We launched Côte d’Or products carrying the rainforest alliance Certified seal in 2009. We’re working toward using rainforest alliance Certified beans across our Côte d’Or and Marabou lines—equal to 30,000 metric tons (over 66 million pounds) annually—by 2012. in 2009, we increased our purchased volume by 110 percent versus 2008, to 7,100 metric tons (16 million pounds).

today, we are the largest buyer of coffee and cacao beans from rainforest alliance Certified farms. to earn certification, farms must meet rigorous standards set by the Sustainable Agriculture Network, an international coalition of leading conservation groups. the standards address water pollution, soil erosion, pesticide use, wages and conditions for workers, wildlife and more.

in early 2009, we joined other industry, government and nongovernmental partners in two Bill & Melinda Gates Foundation initiatives that will invest $90 million over five years to advance sustainable production of cocoa and cashews in West africa—and improve the lives of farmers in the process. the Cocoa Livelihoods Program is managed by the

World Cocoa Foundation with $40 million in cash and related support to increase the incomes of small-scale farmers in Cameroon, Côte d’ivoire, ghana, liberia and nigeria.

the African Cashew Initiative is managed by Deutsche Gesellschaft für Technische Zusammenarbeit GmbH (GTZ) and provides around $50 million in cash and related support to train producers and link them with local processing facilities in benin, burkina faso, Côte d’ivoire, ghana and Mozambique. the program also promotes the value of by-products and builds incentives for local african processing capacity. through both the cocoa and cashew initiatives, we hope to help break the cycle of poverty for 200,000 cacao farmers and 150,000 cashew farmers. and the results are starting to materialize. in 2009, we purchased 32 container loads (1.1 million pounds/ 500 metric tons) of cashews that were grown and processed in sub-saharan africa.

since 2004, we’ve been an active member of the World Cocoa foundation, a membership-based, nonprofit foundation. With nearly 70 members, the World Cocoa foundation promotes a sustainable cocoa economy through socioeconomic development and environmental stewardship in cacao-growing communities in latin america, southeast asia and West africa.

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fourteen Kraft foods brands carry the rainforest alliance Certified seal.

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We’re also one of several companies that have joined the World Cocoa foundation and United States Agency for International Development (USAID) in creating a program called ECHOES—an acronym for empowering Cocoa households with opportunities and education solutions. eChoes strengthens cacao-growing com-munities in Côte d’ivoire and ghana by training young people in vocational agriculture. students learn sustainable farming methods as well as life and leadership skills. Many of the young adults go on to start new, modern farms.

the ultimate goal of the program is to serve as a replicable model throughout West africa. as part of the eChoes program, we’ve helped train more than 5,200 students and more than 7,100 teachers to promote sustainable cacao farming.

in addition to the initiatives outlined above, we’re helping to make farming more sustainable by engaging with our partners in a variety of ways.

• in 2009, we joined other members of the World Economic Forum in an initiative called the New Vision for Agriculture. the initiative’s objective is to address the historical under-investment in agriculture. it seeks to expand the public-private collaboration that is crucial to accelerating growth in sustainable

agriculture and to providing nutritional and affordable foods. the new vision for agriculture reflects a shared belief that sustainable agriculture is a critical factor in solving multiple problems—including hunger, poverty and environmental degradation. partners in the initiative intend to release recommendations in early 2011 that will identify regions of concentration, opportunities for investment of public funds, and a shift toward helping the people in the countries that receive such funds to help themselves.

• We’re also working with nongovernmental organizations like the World Wildlife Fund and Conservation International to assess the sustainability of certain raw materials such as coffee, cacao and cashews. they’re looking at africa, asia and latin america, where we buy most of our ingredients. based on the assessments, we’re evaluating options for sustainable product sourcing.

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“Soon, 9 billion people will seek to improve their lives in the context of a single planet. And every business in every industry will be forced to grapple with finding ways to meet their needs while using less water, carbon and land. We work with companies like Kraft Foods that are willing and able to influence the future of the planet by working to positively advance the way agricultural commodities are produced, bought and sold.”

Carter Roberts president and Ceo, World Wildlife fund, U.s.

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• We partner with CARE, one of the world’s leading humanitarian agencies, to create new opportunities for cacao farmers in brazil and ghana. in brazil, the program is targeting over 220 cacao-farming families with training and education for improving cacao production. the program is also fostering farmers’ entrepreneurial skills and helping them diversify their sources of income. in ghana, the partnership is helping 2,500 young farmers increase their cacao yields—thereby increasing their household incomes—as well as reducing children’s responsibilities on cacao farms so they can go to school and thrive. together, we are helping to provide opportunities for cacao-growing families—opportunities that will help to lift them, and their communities, out of poverty.

• We contribute to a World Wildlife fund program that preserves biodiversity and protects wildlife while improving the incomes of farmers in regions of sumatra, indonesia, where we source some of our coffee.

• We support the World Cocoa Foundation’s Sustainable Tree Crops Program of the international institute of tropical agriculture, which encourages the use of fewer pesticides, improves farm conditions and productivity, and promotes socially responsible production methods.

• We’re a member of the Sustainable Agriculture Initiative (SAI) platform created by the food industry to advance sustainable farming for a variety of commodities. sai platform has harmonized the definition of sustainable agriculture in a clear set of principles and advises, informs and trains personnel of member companies to promote knowledge sharing and use of best practices.

• We are a founding member and financial supporter of 4C Association, originally known as the Common Code for the Coffee Community. this coalition of producers, trade, industry and nongovernmental organizations aims to help farmers lower their costs, improve quality and efficiency, and gain access to markets and credit.

• in europe and the United states, we’re developing ways to source wheat for our biscuit and snack businesses in a more integrated way that aims to reduce environmental impact.

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“ CARE is pleased to be working alongside Kraft Foods to improve the lives of people living in poor communities. Through savings, education, entrepreneurship and innovative technologies, thousands of cocoa farmers are benefiting from more sustainable cocoa farming systems. Together, Kraft Foods and CARE are making a real difference in the lives of many rural families around the globe.”

Helene D. Gayle MD, MPHpresident and Ceo, Care

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Addressing key issues in the supply chainCOCOA LABOR ISSUES Kraft foods is involved in substantial efforts to address forced labor and the worst forms of child labor in cacao farming. While we don’t own or control any farms, we remain committed to working with others to address this issue.

since 2001, we’ve worked with U.s. government officials, the governments of Côte d’ivoire and ghana, and our peer companies. our efforts are focused on economic development, promoting responsible labor practices and education.

in 2002, to further our commitment, we co-founded the International Cocoa Initiative (ICI), an independent foundation aimed at ending abusive labor practices on cacao farms. engaging with cacao-farming communities about child labor and hazardous work practices to develop a change in attitude is a slow process, especially in places where poverty is prevalent. this dialogue is central to getting cacao communities to commit to a long-lasting change. by working community by community, the iCi is raising awareness and seeing a reduction of hazardous child labor in cacao farming in Côte d’ivoire and ghana.

by working together with our partners, we are improving the quality of life for thousands of children and adults in cacao-farming communities in West africa; providing greater access to education; boosting farm family incomes; encouraging responsible labor practices; and helping at-risk and potentially exploited children.

PALM OIL AND DEFORESTATION palm oil is used in a large variety of products worldwide, and demand is growing. this is contributing to deforestation in the tropics given current general practices. Constructively addressing the issue requires cooperation from producers (including farmers, cooperatives and post-harvest processors), the food industry, governments and civil society.

for our part, we purchase only the fats derived from palm oil. our suppliers primarily source from indonesia and Malaysia, with smaller quantities coming from brazil, Colombia, Mexico and West africa. our purchases amount to less than 0.5 percent of worldwide production.

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following serious allegations concerning the environmental practices of one of our palm oil suppliers, we suspended direct purchases from the supplier. this decision will stay in effect until the supplier and any affiliates clearly demonstrate they sustainably source palm oil and comply with local laws.

We support the goals and efforts of the Roundtable for Sustainable Palm Oil (RSPO), and we buy from its members. however, we believe more needs to be done to enforce guidelines and address deforestation. the rspo needs to reach broad consensus on its certification standards, in particular with regard to climate change impacts of palm oil production.

We continue to discuss options with our suppliers to purchase palm oil that meets the standards and principles of responsible production. We are also working with the World Wildlife fund to gain a better understanding of the issue and our options. We will begin to purchase certified palm oil through GreenPalm certificates in 2010. as certification advances, we will continue to review our purchasing strategies.

ANIMAL WELFARE a growing concern, especially in european Union (eU) countries and the U.s., is animal welfare. in the eU and the U.s., we require our facilities and those of our direct suppliers that manage live animals to meet industry standards and government regulations on animal welfare. in Canada and the U.s., we adhere to species-appropriate standards developed by trade organizations for beef, pork, chicken, eggs and turkeys. suppliers must demonstrate compliance through annual audits conducted by a third party. in the eU, our suppliers have to comply with established animal welfare regulations as a condition of exporting goods to eU countries.

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Packaging packaging is one of the first and last experiences consumers have with our products. smarter packaging cuts waste, conserves natural resources and gives users a more satisfying experience. our decisions about sourcing, design and end of life for our packaging have a direct impact on how our consumers interact with our packaging—from cart to can.

focus and collective effort across our global business units allowed us to exceed our goal of reducing packaging by 150 million pounds (68,000 metric tons) two years ahead of our commitment to do so by 2011 versus a base year of 2005. by the end of 2009, we had cut more than 174 million pounds (nearly 79,000 metric tons) of packaging from our supply chain.

Key to our results is our packaging eco-Calculator™. it’s a tool we provide our packaging developers to help them create more efficient, sustainable solutions, using data from the U.s. environmental protection agency, department of energy and packaging industry groups. the eco-Calculator measures the percentage of postconsumer recycled material, the amount of energy and carbon dioxide emissions required to create the package, and the efficient use of material and void space in the package.

besides improving our designs, we’re also using more sustainable materials. in north america, the majority of people can recycle more than 70 percent of our packaging (by weight). Most is made from renewable paper. We’re also printing some packaging using soy- and other vegetable-based inks.

for consumers, governments and trading partners, having a universally accepted definition for sustainable packaging—along with metrics to measure progress—is important. that’s why we’re co-leading the Global Packaging Project sponsored by the Consumer Goods Forum—with the goal to define sustainable packaging and align the industry on consistent metrics and measures.

paCKaging

global packaging reduction with Weight eliminated since 2005 (mm/lbs)

-174 mm/lbs

20062005 2007 2008 2009

Examples of our products that have reduced packaging: Kenco coffee refill pouch 97 percent less packaging compared to the glass jar, formerly the product’s sole container.

Oscar Mayer Deli Creations 30 percent less paperboard; 1.2 million fewer pounds (544 metric tons) of packaging.

Milka chocolate bars 60 percent less packaging weight from fewer layers; 5.7 million fewer pounds (2,600 metric  tons) in europe and rolling out the process in latin america.

Kraft Mayo new shape reduced plastic by 20 percent. and because the new jar is stronger, less corrugated board is necessary for transport.

Maxwell House, Yuban and Nabob coffees Coffee cans went from steel to composite paperboard that weighs 30 percent less, uses 50 percent recycled content and is expected to eliminate 8.5 million pounds (3.9 million kilograms) of packaging.

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REUSING AND RECyCLING recyclable packaging has little benefit if consumers don’t recycle. We’re helping to increase recycling rates around the world.

in 2008 and 2009, we partnered as the official food sponsor with RecycleBank®, a company that rewards consumers for recycling. at the end of 2009, recyclebank had saved more than 420,000 metric tons (9.3 million pounds) of material—the equivalent of 4.3 million trees and 280,000 gallons (over 1 million liters) of oil from which plastic is made. in addition to our work with recyclebank, we’re also collaborating with industry packaging organizations in australia, europe, latin america and elsewhere to boost recycling rates.

TURNING TRASH INTO USEFUL PRODUCTSseventy percent of our north american packaging is recyclable. for the remaining 30 percent that can’t be recycled, we’re working to find alternatives to address the end of life of the packaging. one alternative is to use it a second time, or “upcycle.” in 2007, we partnered with TerraCycle™, a company that collects postconsumer packaging and turns the waste into merchandise. so far, we’ve diverted over 2,700 metric tons (6 million pounds) of materials from landfills.

the system works through a series of collection brigades. the brigades are typically run out of community centers, schools and youth groups. the collection teams are compensated by Kraft foods for each package they collect and send in. the money the organization receives is used to buy equipment and supplies for the collecting organization or is donated to their charity of choice. We’re the largest sponsor of terraCycle collection brigades around the U.s., with more than 39,000 Kraft foods-sponsored locations and 7 million people estimated to be collecting waste.

encouraged by that success, we’ve expanded the program to include brazil, Canada, Mexico and the UK, making us the largest sponsor of terraCycle collection brigades in the world.

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globally, 12 Kraft foods brands have partnered with terraCycle to help turn nonrecyclable packaging into fun, usable goods.

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Reducing energy to help combat climate change Kraft foods faces an increasingly complex landscape related to climate issues. as a food company, we are concerned about potential effects climate change may have.

so, we’re looking across our supply chain at both direct and indirect impacts. for direct impacts, we are focusing on our manufacturing and transportation operations. for indirect impacts, we are focusing on our agricultural commodity purchases.

our focused and pragmatic approach allows us to concentrate on where we can be most effective. We actively participate in the Carbon Disclosure Project (CDP) and have done so since 2005. since the beginning of our participation, we have formally reported scope 1 and scope 2 emissions. in 2009, we started reporting on a portion of scope 3. you can view our carbon-emissions profile at the Cdp website.

our goal is to cut energy use in manufacturing plants by 25 percent by 2011. We’ve reduced it by 15 percent by the end of 2009. and we’ve reduced energy-related emissions by 17 percent

between 2005 and the end of 2009—substantial progress toward our goal of achieving a 25 percent reduction by 2011. We did so by implementing changes in our operations on a global basis, physical changes through investment, and behavior modifications of time and effort. We are investing in new technologies for lighting, heating, refrigeration, processing and packaging, and it’s paying off.

We are also looking to reduce our consumption of fossil fuels by tapping into alternate sources. sometimes we have a viable alternate energy source right in our factories. at our plants in lowville and Campbell, new york, we identified a new fuel source and solved the perennial problem of how to dispose of the whey that is a by-product of our cheese making. by treating the whey in an anaerobic “digester,” we produce enough methane to replace about 30 percent of the natural gas our plants use annually. (that’s enough bio-methane to heat 1,000 homes in the northeast.) Using the whey also eliminates the need to truck it for disposal, saving diesel fuel and carbon dioxide emissions. an additional benefit of reclaiming the whey is cleaner wastewater. We’re exploring ways to convert whey to energy across our dairy-products network.

energy

BETTER WORLDSNAPSHOT

our manufacturing plants account for 92 percent of our electrical consumption. by reducing electricity use, we save fossil fuel burned to generate power and the resulting greenhouse gases.

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at other plants, we’re using coffee grounds to generate energy. We’re also reclaiming heat from ovens to heat water, experimenting with wind turbines on factory roofs, and simply remembering to turn out the lights. and we have a goal to eliminate chlorofluorocarbons in manufacturing by end-of-year 2010 and hydrofluorocarbons by 2020.

We invest in energy savings in our office buildings, too. our corporate headquarters campus in northfield, illinois, U.s., recently earned the Energy Star rating from the U.s. environmental protection agency. it is ranked in the top 8 percent among office buildings in the U.s. and uses 33 percent less energy than similar commercial buildings.

the Kraft foods building in Zurich, switzerland, is known as the lightcube, for its use of glass, automated shades and its weather station. this building uses 50 percent less energy for lighting and 60 percent less for ventilation than comparable facilities. buildings in australia, brazil and the philippines also have strong efficiency records.

Kraft foods is one of the signatories to The Copenhagen Communiqué on Climate Change. the Communiqué aligns directly with our view that the United nations climate framework agreement makes sense for society generally and will ultimately benefit our business.

through measures large and small, we are closing in on our goal of cutting a quarter of our energy use.

energy

2005

global Manufacturing energy Consumption (gj/ton) with % Change since 2005

2006 2007 2008 2009

-15%

Known as the lightcube, our building in Zurich is one of our most energy-efficient facilities.

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Watching our water use More people making more demands on the planet’s water supply have made water a focus around the world. We’re doing our part to treat water as the limited resource it is.

We’ve reduced water consumption in our manufacturing facilities by 32 percent since 2005, surpassing our goal of cutting 15 percent by 2011. We met our goal by reusing water, improving processes, maintaining equipment and educating employees. and we’re not stopping there—we’re continuing to identify new opportunities for reducing our water use.

our plant in port Melbourne, australia, where we make our Vegemite spread, is a great example. over a four-year period, we consolidated Vegemite manufacturing processes and made innovative changes to our production processes, resulting in a 58 percent reduction in water use. We also reduced wastewater discharge by more than 65 percent. (energy consumption dropped by 52 percent, too.) Wastewater streams from the production of Vegemite spread are now recovered, treated and used in local road building, saving about 1 million liters

(264,200 gallons) of potable water per month. new initiatives at the plant aim to cut water consumption by another 39 percent, diminish wastewater by an additional 55 percent, and reduce carbon dioxide emissions by 1,450 metric  tons (3.2 million pounds).

at our Cieszyn, poland, chocolate facility, we reduced water use by 39 percent compared to 2005 through continuous improvement efforts. and in germany, we reduced water at our hemelingen coffee plant in 2009 by 19 percent compared with the previous year through improvements to the cleaning process.

Water

global Manufacturing Water Consumption (m3/ton) with % Change since 2005

20062005 2007 2008 2009

-32%

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Cutting waste We’ve reduced net waste from our manufacturing plants by 30 percent from 2005 levels, exceeding our goal of a 15 percent reduction by 2011. our strategy is simple: generate less and find new uses for the waste that is produced. solid waste generated from manufacturing accounts for more than 99 percent of total waste generated by Kraft foods. We currently recycle or reuse about 90 percent of all our manufacturing waste. in some cases, we’re using manufacturing by-products as energy sources.

in 2007, we launched a pilot program with Sonoco, a global packaging and recycling company, to substantially reduce waste in our plants. our ultimate objective: to send zero waste to landfills. six of our north american facilities have achieved this goal so far. they include our plants in Mississauga and scarborough, ontario, Canada; and several in the United states—new Ulm, Minnesota;

philadelphia and lehigh, pennsylvania, as well as our distribution center in bethlehem, pennsylvania. there, employees separate recyclables, organics and waste. they strive to recycle or reuse what would otherwise go to landfill; residual waste goes to an energy facility where it is burned as fuel. We’re looking at ways to replicate these successes at our facilities worldwide.

Waste

global Manufacturing Waste generation (kg/ton) with % Change since 2005

20062005 2007 2008 2009

-30%

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transportation/distribUtion Shipping and storing

product more efficiently improving our global transportation and distribution network so that we move products and raw materials more efficiently saves truck fuel, cuts carbon dioxide emissions and reduces traffic. since 2005, improved internal processes along with our collaborations with customers and suppliers have saved more than 50 million road miles (80 million kilometers)—the equivalent of driving from Madrid to beijing more than 8,500 times.

sometimes the answer is right under our feet. like our underground refrigerated-storage facility built into the natural limestone caves at springfield, Missouri, U.s. not only do the naturally cool caves require 65 percent less energy than conventional storage facilities, their large size and central location enable us to consolidate inventory and transport our products to our customers more efficiently. annual savings: 180,000 gallons (680,000 liters) of fuel, 4 million pounds (1,800 metric  tons) of carbon dioxide emissions, and more than 1 million miles (1.6 million kilometers) of truck travel.

another solution is to use other, more efficient modes of transportation. in north america, we’ve saved more than 1 million miles, replaced

10,000 truck shipments and cut nearly 2,000 metric tons (4 million pounds) of emissions by shipping wheat to our toledo, ohio, flour mill by waterway rather than road. in brazil, in just six months of shipping by water we reduced 125 truck shipments—nearly 250,000 miles (390,000 kilometers) and 300 metric tons (more than 600,000 pounds) of carbon dioxide emissions.

the right technology can make a difference, too. Using the Oracle® transportation Manage-ment system to manage and optimize truck movements and minimize “empty miles” in our U.s. operations saved us more than 500,000 miles (800,000 kilometers) in 2009.

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as members of the U.s. environmental protection agency’s SmartWaySM Transport Partnership, we’ve reduced truck idling, lowered our corporate speed limit, equipped our trucks with fuel-saving technology and adopted other strategies that enable our trucking operations and those of our freight carriers to use less fuel and emit fewer greenhouse gases. in 2009, we were one of just five consumer products companies to earn the smartWay excellence award.

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since 1993, we’ve shipped coffee beans to our berlin, germany, roasting plant by rail rather than truck. that’s reduced fuel consumption by 60 percent, eliminated 100,000 truck transports, cut 1.8 million miles (2.8 million kilometers) and eliminated carbon dioxide emissions by two-thirds, or 2,300 tons (2,000 metric tons)

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as a food company, we believe we can make the greatest difference by sticking to our core competency and focusing our giving and efforts on food and nutrition. our giving worldwide primarily falls into one of three areas: fighting hunger and malnutrition, promoting healthy lifestyles and responding to disasters.

in order to maximize the impact of our efforts around the world, we work collaboratively with peer companies, governments and nongovernmental organizations to help improve the lives of those in need. as a member of the global community, we’re committed to real, measurable change.

Working to end hunger and malnutrition hunger is the world’s leading health threat.* one in six people worldwide—more than 1 billion—don’t have enough to eat. as one of the world’s largest food companies, we’re in a unique position to help.

fighting hUnger and proMoting affordable nUtrition

*World food programme, http://www.wfp.org/hunger

Our four-pronged approach to addressing hunger and improving nutrition 1. providing direct aid2. developing/marketing affordable nutrition products3. supporting sustainable agriculture4. advocating effective policy

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We’re fighting hunger and malnutrition in 10 countries. We do so by offering aid, developing products that make good nutrition affordable, supporting sustainable agriculture, and advocating for sound public policy. Kraft foods and the Kraft foods foundation team with leading humanitarian organizations that can best use what we bring to the table: food and financial resources, expertise in food technology and production, nutrition, and an efficient global supply chain.

PROVIDING AID We have a long history of providing aid to hunger-relief organizations worldwide. Kraft foods* has donated nearly $1 billion in cash and food to select organizations since 1990. and, in the U.s. alone, between 1999 and 2009, we’ve provided over 1 billion servings of food.

in the U.s., our partner is Feeding America. We’ve helped feeding america increase the amount of fresh, nutritious food dispensed by its 200 food banks nationwide. We’ve supported nutrition classes for families in need, donated millions of pounds of food, and provided refrigerated food trucks. Most recently, we* funded mobile pantries that help deliver food to neighbor hoods without easy access to grocery stores.

fresh food—notably fruits, vegetables, proteins and dairy products—is the number one category distributed by the nation’s food banks today, thanks to leadership from Kraft foods and its foundation. fresh food had been absent from the diets of the working poor, due to cost, despite its help in overcoming disease complicated by calorie-dense, nutrient-poor diets. seeing an opportunity, we* worked in partnership with feeding america to build the capacity of food banks to ensure these communities would receive more fresh, nutritious food. in addition, our executive vice president of operations and business services now serves as chairman of feeding america’s board to help set its strategy. and, our employees provide supply chain consulting in hopes of yielding substantial productivity savings.

outside of north america, our partners include CARE, the Charities Aid Foundation, the European Federation of Food Banks, INMED Partnerships for Children, International Federation of Red Cross, Save the Children and the World Food Programme, among others.

* some contributions were made by the Kraft foods foundation.

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Whether it’s a hard-to-reach rural area or an urban neighbor-hood without a grocery store, the Kraft foods Mobile pantry program is making a difference for families living in our country’s food deserts. in 2009, our company and foundation pledged $4.5 million over three years to feeding america, and the mobile pantry program is bringing more food—and better nutrition—to children and families who need it most. the fleet of up to 25 trucks brings fresh produce, protein and dairy products into communities where access to food is challenging. they’ll deliver up to 50 million meals over three years.

www.feedingamerica.org

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in 2009, the foundation committed to provide $3 million to save the Children’s meal distribution and nutrition education programs in indonesia and the philippines.

in 2010, our foundation began partnering with inMed partnerships for Children to launch a school-based nutrition program for children in brazil. it will provide $2.25 million over three years to help children ages 5 to 14 learn about good nutrition, physical activity, basic hygiene and sanitation. Children will also tend gardens to grow fresh produce for their schools and the surrounding community. additionally, the program will train school food workers in food safety and nutritious cooking; teach mothers of schoolchildren the basics of nutrition and gardening; implement low-cost, low-tech water purification; and screen and treat children for intestinal parasites and anemia.

in 2009, 10 disaster zones received human itarian aid, including the victims of typhoon Ketsana in the philippines, flooding in the U.s. states of georgia and north dakota, wildfires in australia and Canada, and earthquakes in Costa rica, italy and, in 2010, haiti. the foundation also supported disaster relief efforts in Chile. in total, we* have contributed nearly $12 million in cash and products for global humanitarian aid since 2000.

MAKING NUTRITION AFFORDABLE sometimes solutions to hunger lie in innovative products. in 2009, just over 14 percent of our revenue in developing countries (excluding coffee sales) came from fortified products sold at an affordable price.

in indonesia, for example, our Biskuat (“strong biscuits” in bahasa) brand of biscuits enables parents to provide essential nutrients to their children at an affordable price. Biskuat biscuits are fortified with nine vitamins and six minerals, and sell for about 4 cents (Usd) for a full serving of five biscuits—an affordable sum in a place where most people live on less than $4 per day. the biscuits are available at roadside stands and easily fit in a typical pocket. We sell a similar biscuit in Malaysia under the Tiger brand and, in China, we sell our Jia Gai biscuits. in asia and latin america, our Tang orange-flavored drink is fortified based on regional needs. and Eden-brand cheese sold in the philippines provides micronutrients appropriate for residents there.

Biskuat biscuits are enriched with nine vitamins and six minerals, wheat and milk to give children of indonesia energy to win the challenges of the day.

* some contributions were made by the Kraft foods foundation.

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because consumers who don’t have a lot of money need food that lasts, many of our products in developing markets are nonperishable and shelf-stable. one example is the Tang drink, which has a shelf life of two years. We’re exploring how we can give more of our products longer shelf lives without relying on processing and preservatives.

in addition to the nutritional products we already market, we’re developing and sharing technologies for new ones. among them: tasty, affordable, everyday foods that can reduce the risk of parasitic infection, a risk faced by upwards of 2 billion people worldwide. through a long-term partnership, we have developed proprietary technology that is more effective than current solutions. We hope it will be a powerful new tool in the fight against hunger and malnutrition.

ADVOCATING FOR EFFECTIVE POLICy We support public policy that ensures changes intended to end hunger and malnutrition are lasting and comprehensive. for example, we advocate for consistent use of nutritional panel information to better educate consumers. We support basic nutrition education for “at

risk” groups. and as a supporter of the Friends of the World Food Program, we advocate for a series of policy and funding changes intended to build food-producing capacity in developing nations.

in addition, we support an approach to biofuels that values food and fuel equally. and we encourage public investment in an agricultural food supply chain that produces better yields, less waste and more calories per hectare.

CONNECTING HUNGER AND SUSTAINABLE AGRICULTURE according to the United nations, 70 percent of the world’s hungry people are engaged in agriculture. poverty, government instability, lack of infrastructure and natural disasters are underlying factors in struggling agricultural economies. so it’s not surprising that the countries with the most success in reducing hunger are those who’ve made the greatest investments in agriculture.

the link between hunger and agricultural practices is just one reason why we are increasing our support of sustainable agriculture. read more about our commitment in the Sustainability section of this report.

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acting locally as well as globally. in addition to major global initiatives, we’re also working to make a difference neighborhood-by-neighborhood. during our “Make a delicious difference Week” in 2009, over 12,000 of our employees in 33 countries volunteered in their communities. they helped feed families facing hunger, promoted healthier lifestyles and touched the lives of about 600,000 people in need.

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APPLyING LASERLIKE FOCUS TO CHILD HUNGER AND MALNUTRITION We are one of four founding partners in project laser beam, a five-year (2009–2014), multimillion dollar project, which is intended to speed the eradi-cation of child hunger and malnutrition by addressing underlying social and economic causes. project laser beam is a unique collabora-tive initiative with the World food programme, the Global Alliance for Improved Nutrition, national and local governments, and industry. the company and foundation will contribute cash to the project, as well as our employees’ expertise on affordable nutrition, sustainable agriculture, manufacturing and distribution.

project laser beam’s primary goal is to create a sustainable, scalable and replicable model for ending hunger and malnutrition. beginning in bangladesh and eastern indonesia, the project will address five root causes of hunger and malnutrition among children by seeking to:

1. increase micronutrient intake

2. increase treatment of severe acute malnutrition

3. improve hygiene and parasite control

4. strengthen household food security

5. promote exclusive breastfeeding and complementary feeding.

the project will research and identify local nutritional needs and cultural preferences. it will also consider such underlying causes of hunger and malnutrition as income distribution, access to markets, behavior and food accessibility. once the research is complete, we’ll work with our partners and others to implement short-term interventions and identify long-term sustainable solutions to the problems.

“ As the numbers of the hungry increase, we need private companies like Kraft Foods to join us in the fight against hunger. It’s a fight too big for any one player, but together we can find new ways to dramatically reduce malnutrition.”

Josette Sheeran executive director, World food programme

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helping people MaKe better ChoiCes

We’re here to help people achieve health and well-being through everyday foods they love—foods that taste delicious and support their desire for healthy lifestyles.

We follow four simple principles:

1. offer better-for-you options

2. provide consumers clear nutrition information to make better choices

3. advertise responsibly to children

4. promote physical activity and healthy lifestyles.

our approach is in line with our commitment to the World Health Organization and our goal to create foods that are wholesome and delicious.

in all of our health and wellness initiatives, our advisory council of globally recognized experts provides perspective on best practices and emerging science to help guide our efforts.

We’re listening to consumers, and creating better choices—for example, we reduced sugar in Capri Sun by 25%, eliminating more than 120 billion calories from our portfolio.

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Making it better for youpeople around the world are telling us they want to eat healthier. so we’re developing products that provide them with more choices. Whether it’s managing calories, limiting fats, increasing the intake of key nutrients or adding more whole grains to their diets—we offer choices to fit a person’s needs at various life stages.

since 2005, we’ve reformulated or launched more than 5,000 better-for-you products around the world, roughly 30 percent of our portfolio. We’re always working to make our food more nutritious without compromising deliciousness. our nutrition standards help guide our reformulation efforts. in some products, we’ve increased nutrients like fiber and calcium. in others, we’ve cut fat, sugar and salt. in the U.s., we reduced the amount of sugar in our Capri Sun beverages by 25 percent, eliminating more than 120 billion calories. We’re using healthier oils, low-fat dairy, whole grains, and fruits and vegetables.

as of 2007, we had eliminated or substantially reduced trans fats across our entire product line. in 2008, we signed onto the Pan American Health Organization’s Trans Fat Free Americas Agreement—a regionwide commitment among stakeholders to reduce the amount of trans fat in foods.

We’ve also been reducing sodium for a number of years and will continue those efforts. in europe, for example, we reduced sodium across our Dairlylea brand by nearly 30 percent since 2002. and our popular Vegemite brand has reduced sodium levels by 20 percent since 1977. starting in 2010, we plan to reduce sodium in our north american products—our largest portfolio—by an average of 10 percent over the next two years.

Some better-for-you choices available around the world 100 Calorie Packs for multiple products U.S., Canada and Europe each serving comes in easy-to-manage portions.

Jai Gai biscuitsChina one serving provides10 percent of daily calcium.

Express crackers Argentina popular product comes in made-without-salt version.

Pacific whole-grain biscuits China one serving provides 10 percent of daily dietary fiber.

PHILADELPHIA Cream for Cooking Australia dairy-based cooking product has 60 percent less fat than regular cooking cream.

BelVita Breakfast biscuits Europe Made with whole-grain cereals, provides fiber and a selection of vitamins and minerals.

Tiger Biskuat biscuitsIndonesia biscuits enriched with nine vitamins and six minerals.

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We continue to invest in health and wellness research and technology. over the years, we have expanded research efforts through partnerships with leading institutions, including baylor University, University of toronto, tufts University and technical University of Munich. in europe, we participate in a number of research framework programs sponsored by the european Commission, like Diogenes, EATWELL, EuroPrevall and HEALTHGRAIN. to date, we have more than 100 patents covering products and the technology to make foods healthier. in 2009, we spent $477 million on research and development, with a portion of that spend going to health and wellness product and technology development.

Promoting healthy lifestylesaround the world, we support organizations and initiatives that encourage food literacy and physical activity. in the barrios of Caracas and barquisimeto, venezuela, we work with the nonprofit CEDEINTEGRAL to offer Kraft foods “academies,” where professional chefs teach residents interested in restaurant work how to prepare food safely and nutritiously. students leave the academies with skills enabling them to open their own businesses or find work in the restaurant industry. the academies have served more than 150 people since 2008.

since 2005, Kraft foods and Boys and Girls Clubs of Canada, through its Cool Moves program, have helped thousands of children and youth across Canada realize the benefits of a nutritious diet and regular, healthy activity. and in the U.s., we teamed with the National Latino Children’s Institute to develop Salsa, Sabor y Salud, the nation’s first healthy lifestyle program designed specifically for latino families. in 2010, our foundation renewed its commitment to this program. since 2002, more than 100 community organizations have offered the program, reaching nearly 32,000 people. through a national partner, the program is expanding to reach even more families. We also support the Fuel Up to Play 60 initiative that encourages kids to be more active and make better food choices.

We are a founding member of the Healthy Weight Commitment Foundation, a multiyear effort to help reduce obesity—especially childhood obesity—in the U.s. launched in 2009, the focus is on helping people achieve energy balance in three critical areas: marketplace, workplace and schools.

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We launched our “health 4 schools” nutrition and exercise program for schoolchildren in the UK in 2004. in 2009, our foundation expanded this program to russia by partnering with CAF Russia and CAFAmerica. by granting $1.3 million over three years, we will reach more than 10,000 russian families. the foundation is exploring similar programs in australia, China and five countries in europe.

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Providing clear nutrition informationto make informed decisions, people need the right information delivered clearly and simply. With the exception of single-ingredient products like coffee, we provide nutrition labeling on all products in all markets worldwide—even where it’s not required.

following the recommendations of the Codex Alimentarius, a set of globally recognized, widely used food standards, we provide information on eight key nutrients—energy (calories), protein, carbohydrates, sugars, fat, saturated fat, fiber and sodium—where space permits. in europe, for example, we’ve implemented Guideline Daily Amounts (GDAs) nutrition labeling on our packages. this system shows how much of a particular nutrient is contained in a portion, as well as how much of a person’s total daily requirements it represents.

We’re committed to front-of-pack labeling that delivers meaningful information at a glance and fits local needs. in australia and europe, our products include energy front-of-pack information based on gdas. in the U.s., we are actively engaged in government and industry efforts to create standardized front-of-pack labeling systems. overall, we support efforts among the industry to develop common nutrition criteria that will help consumers make better choices.

We also provide nutrition information online and via toll-free consumer call centers. our healthy living websites in several countries offer lifestyle tips and recipes. and in the U.s., our Good Eating, Good Living diabetes website helps people who care about this condition.

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Advertising responsibly to childrenhow we market our products is just as important as the products themselves. in 2005, we became the first company to announce global principles for advertising to children:

• We don’t advertise to children under age 6 (a longstanding policy).

• for children 6 through 11, we advertise only better-for-you products that meet stringent nutritional criteria.

• We don’t advertise in primary or secondary schools.

our practices have been the model for several voluntary advertising-to-children efforts. We work with groups around the world to improve advertising-to-children practices. as a founding member of the International Food & Beverage Alliance, we made a global commitment to the World Health Organization to advertise only products that meet specific nutrition criteria to children under age 12. We’ve made similar pledges in the U.s., australia, brazil, Canada, Mexico, russia, south africa and europe.

“Market responsibly.”Kraft foods Code of Conduct, rule 2

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ensuring the safety and quality of our food is our number one priority. it is at the core of our heritage; and it is part of our culture. Consumers have trusted our brands for more than 100 years. Maintaining that trust starts with quality foods that people can feel good about serving to their families. and we need to make sure we earn that trust each and every day.

Adhering to strict standards We employ a comprehensive quality-chain manage ment system to ensure that our food is safe and high-quality. it’s based on ISO 9001:2000, an internationally recognized family of strict quality management standards. in addition, we supplement the iso standards with safety and quality standards developed specifically for our business. We also work with governments and industry partners around the world, sharing learnings and best practices. for example, in 2001, we announced a new ingredient technology that helped inhibit the growth of Listeria in processed meats. to expedite industry knowledge and use of this food safety innovation, we shared the ingredient technology with the entire meat industry.

setting neW standards for safety and qUality

“Make food that is safe to eat.”Kraft foods Code of Conduct, rule 1

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our quality management system ensures that employees, suppliers and distributors around the world know our standards and expectations— and meet them. We’ve developed 72 employee education programs covering everything from sanitation to allergen control to packaging design.

before we buy ingredients or raw materials from any supplier, anywhere in the world, we conduct an audit of their facilities to make sure they meet our supplier quality expectations (sqe).

suppliers are regularly audited thereafter— every 18 months for suppliers handling cheeses, ready-to-eat meats, fruit and vegetables, and at least every three years for all suppliers. Where suppliers handle food at high risk for contamination, or where quality control is more challenging, we conduct the audits ourselves. in other cases, we work with third-party auditors. regardless of who performs the audit, it’s critical that they be properly trained, managed and adhere to common criteria. suppliers that fall short of our standards must take prompt, verified corrective action. if they don’t, we stop doing business with them.

as a global leader on food safety, we have well-defined safety and quality expectations for our suppliers. We also recognize that no system

is 100 percent perfect. that’s why we are driven by a philosophy of continuous improvement. equally as important as audits are our tools and programs for helping suppliers improve their food safety and quality systems. We hold “lessons-learned” sessions, offer food safety and quality forums, and provide on-site quality consultations.

in 2009, we hosted five supplier quality and food safety forums covering asia, Central and eastern europe, european Union, Middle east and africa, and north america.

Taking action when needed despite our vigilance, threats to safety and quality may arise. When something goes wrong, we respond quickly and decisively. We’ve trained our special situations Management teams—senior-level managers from across the company who are experienced in handling these types of situations—to take immediate steps to protect consumers when there is a food safety issue. We have a real-time, automated early-alert system and processes to fast-track information to our internal quality and consumer managers as well as our special situations Management teams. We’ve also trained employees in our manufacturing plants so they know exactly what steps to take in a time of crisis.

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driven by our philosophy of “continuous improvement,” we regularly look at ways we can improve our supply chain to strengthen food safety. recently, we began screening for potential chemical contaminants in raw materials across the supply chain worldwide. ingredient samples are tested on a scheduled basis and analyzed by a Kraft foods-approved lab. suppliers cannot ship the ingredients to our facilities until test results confirm they meet our specifications for safety.

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Alerting consumers to allergens Many consumers have food allergies—some of them quite serious. When managing food allergens, we address concerns at critical points throughout our production and our supply chain. We account for all the possible sources of major food allergens and clearly identify them on our labels in common terms.

Responding to our consumers it is important that consumers have multiple ways to contact us about our products. that’s why we have consumer contact points in all countries where our products are sold, including 10 major global contact centers. Contact details are on all websites through frequently asked questions (faqs) and Contact Us functionality.

We continue to make ourselves more accessible to consumers by increasing our presence in the social media consumer space. in 2009, Kraft foods facebook and twitter accounts were created to enable consumers to communicate

with us in these increasingly important contact channels. We have nearly 90,000 fans of our facebook page, over 5,800 twitter followers, and more than 3 million views of videos on our youtube Kraft foods channel.

our consumer information analysts represent the voice of the consumer to the organization. in europe, latin america and north america, they provide over 1,000 monthly and quarterly analyses of consumer input to all brands and across multiple functions (e.g., Marketing, quality, research & development). this valuable information helps us better deliver on consumer needs.

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We’ve helped build better food-production infrastructure in Kyrgyzstan and developed products sold by an organization in benin. We’ve expanded the offerings at a vietnam cooking school for low-income residents, helped to improve and extend safe distribution in vanuatu, and helped an ecuadorian charity raise money by selling artisan chocolates. since 2001, we’ve sent more than 160 of our in-house scientists, engineers and other experts on 56 “missions” with the United nations volunteer program. our employees share their expertise with nonprofits and small businesses focused on sustainable agriculture, food production and community development. the result? a difference that’s both delicious and lasting.

www.unv.org

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Weighing the use of genetically modified ingredients We believe genetically modified ingredients can play a role in food production.

We also know consumers worldwide have different points of view about genetically modified ingredients. that’s why when we choose to use genetically modified ingredients in our products, we consider a number of factors, including:

• fact-based scientific consensus about safety

• Consumer acceptance

• local regulatory approval for use

• our own strict safety and quality criteria.

We follow all local regulatory requirements regarding the use and labeling of genetically modified ingredients. We also support appropriate regulation of genetically modified foods and ingredients to ensure the safety and integrity of the food supply and the protection of the environment.

We are confident that genetically modified ingredients are safe based on the conclusions reached by a majority of scientists and regulatory organizations, including the Food and Agriculture Organization of the United Nations, the U.S. National Academy of Sciences and the World Health Organization.

though scientists have reached consensus, consumers have not. for example, in the U.s., most consumers are not concerned about genetically modified foods. so we use them in most of the products we make there. but in europe, most people don’t want genetically modified ingredients, so we don’t use them there. in countries where we don’t use genetically modified ingredients, we require that our suppliers provide documentation on the origin and preservation of all ingredients.

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they make our products. drive our trucks. Manage our company. and much more. around the world, more than 100,000 Kraft foods employees determine our success every day. treating them well is, above all, the right thing to do. it’s also key to our long-term industry leadership. providing a workplace that is safe, inclusive and rewarding is a proven strategy for keeping good people and inspiring them to do great things. and that’s the best way we know to grow a great company.

Keeping workers safe safety is a top priority. We strive for zero accidents in the workplace by addressing all causes of injuries. We’ve made progress. We have reduced our lost-time accident rate by 27 percent since 2005. We also expect employees to follow all safety laws and guidelines (including reporting injuries), operate equipment properly, and never use alcohol or illegal drugs in the workplace.

in 2009, 27 plants worldwide completed a full year of operation without a lost-time accident. these facilities were presented with a plaque for helping us fulfill our vision of being a “safety perfect” organization. facility managers made the presentations at plantwide celebrations, where all employees were recognized for this achievement.

“Treat people fairly.”Kraft foods Code of Conduct, rule 3

a great plaCe to WorK

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our safety policy sums up our position:

• safety and health improvement are both an individual and team responsibility.

• each of us must be dedicated to conducting all activities with the highest concern for employee safety and health.

• each of us should participate in a local safety program and actively seek to achieve an accident/injury-free work environment.

accordingly, we’re committed to:

• Meeting or exceeding all applicable safety and health regulations

• Continuously improving the safety of our work environment by investing in our people and our facilities

• Creating and maintaining a world-class safety culture to achieve an accident-free work environment.

We regret to report that we lost four employees to fatal accidents in 2009. two Kraft foods sales representatives died in a commercial airline crash near buffalo, new york, U.s.; a truck driver lost control of his vehicle while on the road in south Carolina, U.s.; and a manufacturing employee in poland died from injuries after falling from a ladder. We thoroughly investigate all on-the-job accidents to find the cause and to see if we need to revise our safety procedures.

lost-time accident reduction since 2005.*

2005 2006 2007 2008 2009

-27%

* this chart shows the number of lost time accidents per 100 full-time equivalent Kraft foods employees per year.

0.86

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Treating people with respectWe’re building an increasingly diverse workforce. We won’t permit discrimination or harassment based on age, race, disability, national origin, religion, sex, sexual orientation or any other legally protected status. being inclusive is critical to our success. it enables us to be the employer of choice for talented people. by mirroring consumers worldwide, we do a better job of meeting their needs.

our global diversity and inclusion strategies provide direction to our employees worldwide, while helping each region make diversity relevant to its own priorities and opportunities. for example, hourly employees represent about 61 percent of our workforce and salaried employees account for 39 percent.

Companywide, we require diversity and inclusion training for every employee at key stages in their careers. eleven diversity-focused employee councils around the world help us promote diversity and drive business objectives. the relationships we build through community involvement connect us with a broad range of consumers and attract diverse talent. in 2009, we linked the representation goals of each business unit to executive compensation to make our leaders accountable for diversity outcomes.

Building great talentlike building great brands, building the skills and talent of our people is a top priority at Kraft foods. our performance management process creates a clear connection between employees’ development, our business strategies and individual performance required for the company’s success. it is funda mental to becoming a high-performing organization. for 100 percent of employees, Kraft foods identifies skill gaps and manages the development of its employees’ capabilities through a formalized performance management process entitled Managing and appraising performance, or Map.

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We’re working across our company globally to hire, develop and retain more women who earn the same as their male peers. Currently, 43 percent of our salaried employees are women, and women make up more than 35 percent of our management team.

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Kraft foods’ rigorous and consistent approach to all elements of performance management—goal setting, ongoing informal and formal performance feedback, development and assessment—provides a strong framework for managers and employees as they translate company strategies into the work they do every day.

We are committed to providing a performance management process that:

• sets clear expectations

• expects full accountability

• engages employees and managers in continuous feedback, both informal and formal

• fosters meaningful development.

We’re clear about what our employees need to do to succeed—and we help them do it. our leadership Competency Model, along with our values and leadership behaviors, provides the organization with a common language that describes expectations of all employees regardless of level, location, function or business. We also provide employees with a web-based toolkit (translated into 28 languages) that helps them develop each competency.

through an annual global succession planning process, we focus on differentiation, development, diversity and depth. our succession plan drives consistency in the application and assessment of employee development practices and ensures that leaders accurately differentiate talent in order to drive key development actions.

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“One thing is certain—when gaining a business advantage means violating the rules or ignoring our Values, we don’t do it.” Kraft foods Code of Conduct, introduction

We take the public’s trust seriously. the good faith of consumers, partners, regulators, shareholders and suppliers is something we renew daily, by doing what we say we’ll do.

Our Code of Conduct in 2009, we updated our Code of Conduct, the cornerstone of our commitment to doing business with integrity. We revised the Code to be concise, clear and unequivocal, and made it available in 33 languages. by stating 10 simple and wide-ranging rules, the Code links our business performance with our core values and draws strict ethical boundaries. it makes plain, for everyone who works at Kraft foods, what we believe is the right and fair way to do business. every day.

revising our Code of Conduct reflects our belief that ensuring compliance and integrity is a never-ending process. We’re continually making sure our standards are high, expectations are clear, and that we have the tools and processes in place for meeting them. We regularly perform assessments of key legal and compliance risks across our entire company.

sUstaining a legaCy of trUst

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Helping employees do the right thing our chief compliance officer and five regional compliance officers—with support from other members of the Compliance & integrity and legal groups—help employees understand our ethical standards. training—in-person and online—educates workers worldwide about our ethics and compliance practices.

in 2010, we’re asking exempt employees at all levels to take our Code of Conduct online training and complete an acknowledgment form. this is double the number from our previous campaign in 2008.

in addition, we offer in-depth courses to employees based on their responsibilities. topics include food safety, antitrust issues, antibribery issues and responsible marketing. to support ongoing improvement, we continuously measure and evaluate the effectiveness of our ethics programs.

in 2009, we launched a new ethics in action program to recognize employees who act with ethical courage and lead with integrity. one award went to an accounts payable manager in shanghai, China. When faced with what he

suspected to be fictitious invoices, improper payments and fake premiums, he stood up for what was right and protected our company. the second award recipient was a quality supervisor in our Champaign, illinois, U.s., plant, who consistently demonstrated ethical courage when faced with a number of difficult challenges. he is a role model among his coworkers.

Ensuring people feel safe to speak upUnder our speaking Up policy, we expect employees to ask questions and raise concerns about business practices when they see something they think might be wrong. there may be times when employees are not comfortable speaking with their supervisors, compliance officers or human resources contacts, or simply wish to remain anonymous. Consistent with applicable local law, we have established a toll-free telephone HelpLine operated by an independent company, as well as a corresponding WebLine, so that our employees can confidentially and, if they wish, anonymously report instances of suspected wrongdoing or ask questions about compliance matters. the helpline and Webline are available globally and allow employees to discuss their concerns in their own languages.

If our Code of Conduct doesn’t cover a specific situation, our employees draw on our Values to guide them: We inspire trust. We act like owners. We keep it simple. We are open and inclusive. We tell it like it is. We lead from the head and the heart. We discuss. We decide. We deliver.

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anyone outside of our company who suspects wrongdoing by Kraft foods employees or involving Kraft foods business can contact the helpline, Webline or our Compliance & integrity group at Kraft-Compliance@kraft.com.

Holding suppliers to high standardsWe select suppliers and consultants around the world based, in part, on whether their ethical standards align with ours. Most major companies have supplier requirements regarding corporate responsibility. yet most companies are both suppliers and customers, leading to a proliferation of codes of conduct and assessment requests.

We helped create a far simpler and better approach. Kraft foods is a founding member of the program for responsible sourcing (progress) sponsored by aiM in europe and the grocery Manufacturers association in the United states (AIM-PROGRESS). this industry initiative allows a supplier to provide common information so each customer can independently make business decisions in accordance with its own corporate responsibility standards. We are currently rolling out progress to our suppliers and business partners. this is an ambitious global effort that will take several years to complete.

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Corporate governanCe

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We’re a publicly held company. We strive to be open and accountable to all of our stakeholders everywhere. so we’ve put structures and processes in place to ensure the ethical and efficient governance of our company.

ABOUT OUR BOARD a 12-member Board of Directors governs our company in a manner consistent with Kraft foods Corporate Governance Guidelines. eleven of our 12 directors are independent under the new york stock exchange listing standards.

in 2007, the board determined that the chief executive officer would be the only employee director, and all board committees will consist entirely of independent directors. they also established the lead director position —an independent director who serves as the liaison between the chief executive officer and other directors—to increase the board’s effectiveness, promote open communication among independent directors, provide independent board leadership on behalf of shareholders, and chair meetings of the independent directors.

ensUring aCCoUntability

The Board of Directors has five standing committees 1. Audit 2. Finance 3. Human Resources and Compensation 4. Nominating and Governance 5. Public Affairs

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While the board does not have a written policy regarding diversity when identifying nominees for directors, it endeavors to assemble a board composed of individuals with diverse views, backgrounds and professional experience. for example, of the 12-member board, 30 percent are women, one of whom is a person of color. the representation of women on our board exceeds the fortune 500 average of 15.2 percent, which was reported in 2009 by Catalyst.

all non-employee board members are expected to adhere to our Code of Business Conduct and Ethics for Non-Employee Directors. this Code addresses such issues as legal and regulatory compliance and conflicts of interest.

ExECUTIVE COMPENSATION given the increased focus on this topic in recent years, in 2009 and early 2010, the board’s human resources and Compensation Committee conducted a thorough analysis of compensation practices and made several adjustments to Kraft foods executive compensation programs. beginning in 2010, the mix of grants to senior management, including the named executive officers, will be as follows: 50 percent performance shares, 25 percent stock options, and 25 percent restricted stock. this mix will place more of an emphasis on performance-based compensation—performance shares and stock options.

SPEAKING UP Kraft foods monitors public policy and participates in the public discussion on issues affecting our company. some examples of issues include food safety and security, nutrition, biotechnology, environmental responsibility, food labeling, marketing and packaging. and, when we engage with governments, we follow the rules and do it with transparency. for example, we voluntarily publish a list of all Kraft foods’ U.S. political contributions on our Corporate governance website.

HOW TO REPORT FINANCIAL WRONGDOING We encourage those outside our company and our employees to report concerns about our fiscal controls, auditing matters or anything else that appears to involve malfeasance of any kind. please report such concerns to Kraft-FinancialIntegrity@kraft.com.

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Environmental Resources Management

One Continental Towers 1701 Golf Road, Suite 1000 Rolling Meadows, IL 60008 (847) 258 8900

http://www.erm.com

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assUranCe stateMent

Kraft Foods, Working to Build a Better World, Responsibility Report

Environmental Resources Management (ERM) was retained by Kraft Foods to provide an independent review and assurance statement for Kraft Foods’ 2009 Responsibility Report.

Scope of Work

The assurance process was conducted in accordance with AA1000AS (2008). We were engaged to provide moderate level, Type 2 assurance, covering: evaluation of adherence to the AA1000AS (2008) principles of inclusivity, materiality and responsiveness (the Principles), and the reliability of specified sustainability performance information.

Assurance Work Performed

We tested the effectiveness of processes used to adhere to the AA1000AS Principles through interviews with selected senior management at executive and functional levels and of relevant management responsible for day-to-day management of sustainability.

ERM interviewed key individuals who were responsible for the development and implementation of Kraft Foods’ response to the following topics:

Sustainability Work Place and Culture Hunger and Affordable Nutrition Compliance and Integrity Health and Well Being Corporate Governance Food Safety and Quality

In addition, ERM reviewed the corporate environmental performance indicator (EPI) datasets, visited a sample of seven sites, and interviewed people at eight additional sites to review site data capture and reporting. The assurance sites were selected from each business region to provide a representative sample of the significant contributors to the six key EPIs and to include sites that were assessed to have the most significant year-on-year changes. The processes were tested at site level by tracking samples of data from input and calculation to consolidation, internal checking, and reporting.

EPI data was reviewed for the calendar year 2009 from manufacturing plants only and for the following six EPIs: water consumption, water discharged, energy used in stationary sources, carbon dioxide emitted from stationary sources, solid waste generated and waste recycling rates.

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Responsibility and Methodology

ERM’s responsibility was to express our assurance conclusions within the agreed scope. We delivered our work in accordance with ERM’s assurance methodology, which is based on AA1000AS, the Global Reporting Initiative (GRI) Sustainability Reporting Standards and the International Standard on Assurance Engagements (ISAE) 3000. We planned and performed our work to obtain all the information and explanations that we believe were necessary to provide a basis for our assurance conclusions as to whether the reported information and data set out in our scope of work was appropriately reported (moderate assurance).

The accuracy and completeness of this information is subject to inherent limitations given their nature and methods for determining, calculating and estimating such data.

ERM Conclusions

On the basis of the moderate level of assurance work undertaken, we conclude that nothing came to our attention to suggest that the Report does not properly describe Kraft Foods’ adherence to the AA1000AS Principles or its performance.

In terms of data accuracy, nothing has come to our attention to suggest that data has not been properly collated from information reported from manufacturing plants. We are not aware of any errors that would materially affect the data reported.

Observations

Without affecting our assurance opinion, we also provide the following observation:

Kraft Foods has made good progress in integrating sustainability issues into their business processes and adopting a life-cycle approach to sustainability issues. This life-cycle approach is being applied to focus future efforts to reduce impacts associated with their products.

ERM Competence and Independence

ERM operates strict conflict of interest checks for the team members working on the matter and has confirmed our member’s independence to work on this engagement with Kraft Foods. The members of the assurance team have not provided consulting services to Kraft Foods outside the review of EPI data and the Responsibility Report. The assurance team has the required combination of education, experience, training, and skills for this engagement.

Environmental Resources Management Rolling Meadows, Illinois, USA June 2010

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