TORONTO - Rising commodity costs increased second-quarter losses at Maple Leaf Foods Inc. (TSX:MFI) but the company believes it will make a recovery before year's end as it passes cost increases through to customers - and hopes they'll quickly accept the changes.

"What we're facing today is a classic case of pass-through economics for the food industry," CEO Michael McCain told analysts in a conference call.

"In my 30 years in this business it's always behaved in that fashion."

McCain detailed a four-phase response that involves accepting the cost increases, passing them on to consumers, reacting with volume adjustments and finally settling into a more stable sales pattern.

"We expect to be through this storm of short-term volatility and inflation over the next few months. We believe today that our second half will be substantially better than the first."

The company, which processes meats and makes other foods, posted a second-quarter net loss of $9.4 million on Thursday, widened from a year-ago $1.7 million.

The loss amounted to seven cents per share in the quarter ended June 30, compared with a year-ago loss of one cent per share.

Maple Leaf's sales were $1.36 billion, compared with $1.32 billion in the comparable period of 2007.

The loss from continuing operations excluding restructuring costs and tax adjustments came to one cent per share, versus an adjusted profit of 13 cents per share in the second quarter of last year.

Maple Leaf shares slipped 20 cents to $9.80 in afternoon TSX trading after the earnings release, down from over $16 a year ago.

McCain said the turbulent first half of 2008 had been anticipated by the company as market volatility persisted. And while he predicted that volatility and inflation are going to slow, he didn't rule out further price increases.

"There may be - and this is a question mark, we're not sure yet - further pricing action required as it relates to energy costs in the second half of 2008," he said, adding that the company has already finished posting higher price tags because of rising wheat prices.

"What's really important to understand is that these are unprecedented conditions. Our experience is that these pass-through economics have been the case for 30 years. It always has normalized and we expect this one to normalize in a reasonable amount of time as well."

Maple Leaf began a major restructuring in 2006, moving away from unbranded fresh meat in favour of branded meat, bakery and prepared-meal products.

On Tuesday, it said it has begun the formal process for the previously announced sale of its hog processing plant in Burlington, Ont., as hog prices have lagged behind rising feed costs.

"We're in talks with several parties," McCain said in a phone interview. However, he declined to give an indication of the asking price for the facility.

"From a tactical perspective, we'd be crazy to put a number out there," he said.

The company hopes to sell the Burlington plant by the end of the year.

Maple Leaf employs about 23,000 people at its meat processing, bakery and other operations across Canada and in the United States, Europe and Asia.

The company's 89.8 per cent owned subsidiary Canada Bread Co. Ltd. (TSX:CBY) reported Thursday a 69.2 per cent drop in second-quarter profit to $6.5 million, 26 cents per share, from $21.2 million, 84 cents per share.

Canada Bread's sales were up 16.4 per cent to $437.4 million, but profits were eaten up by rising costs of wheat and other inputs.

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