A top executive told Reuters that Danone (DANO.PA) is buying more whey and aluminum from Asia, which experts said might decrease prices but European anger suppliers.
The dairy powerhouse, which creates Activia yogurt, Aptamil baby formula, and Evian water, mostly uses raw European ingredients. The sector is battling to control costs and profits due to cost escalation caused by COVID-19 and the Ukrainian crisis.
Chief Operating Officer Vikram Agarwal said Danone has responded by increasing its commodities base throughout Asia, particularly India, China, and Southeast Asia.
“We started the initiative before the Ukrainian war, and supply issues and rising costs in Europe have made this much more significant,” he added.
Agarwal said Danone imports aluminum, plastic, paper, whey, and maltodextrin from outside Europe.
Analysts warned Danone’s decision to acquire whey—the liquid left after milk is curdled and strained—from outside Europe might strain its connections with dairy producers in France and Europe.
Infant formula and senior nutrition contain whey.
Analysts said Danone has good contacts with European dairy farmers, but industry tensions remain high.
Bruno Monteyne, Bernstein analyst, wished French farmers luck. “They’ll strike because one of their largest clients is dealing with international competition if they’re not striking for pensions.”
Due to the 2015 elimination of European Union dairy quotas and livestock industry concerns about harsher environmental and animal-welfare regulations, France’s dairy farmers have protested dairy corporations’ prices.
Agarwal said Danone, which competes with Nestle (NESN.S) and Unilever (ULVR.L), is improving energy efficiency. Sustainability goals include a 30% energy efficiency improvement by 2025.
He said independent specialists are assessing energy consumption at 20 Danone facilities. In addition, it is modifying product formulas and formulations to handle supply interruptions and inflation.
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