Official figures from Spain confirmed this morning that the country's GDP fell at a faster rate in the second quarter of the year, underlining the difficulties of operating in one of Europe's largest economies.

Spain's double-dip recession has deepened, with the economy shrinking 0.4% between April and June, compared to a decline of 0.3% in the first three months of 2012. The data highlighted how tough it is for companies in Spain and also multinationals with significant operations in the country - just ask Danone.

On Friday, the French food giant confirmed its margins had dropped in the first half of the year, which it had already warned the market about last month with a surprise profit warning. Challenging conditions in southern Europe, not least in Spain, has put pressure on Danone and the company plans to lower prices in a bid to bolster sales. CFO Pierre-Andre Terisse, however, cautioned Danone did not see the trading environment improving in Spain this year. "I don't expect things to improve in Spain and southern Europe, going forward. We need to be agile and make changes to our portfolio."

It's not entirely all gloom for Danone. Its businesses in Asia and in the US (which it also characterises as an emerging market) are growing and last week it secured the acquisition of Indian baby food business Wockhardt. However, there was some criticism among some analysts about its results, with one arguing management has lost credibility and another insisting it prefers Unilever and Nestle to the Activia maker.

However, Unilever's own results highlighted that it, too, has its challenges, not least in food, a side of the business where volumes fell in the second quarter. The consumer goods giant's personal care business is ticking along nicely and its emerging markets operations are strong but parts of Unilever's food business remain problematic.

CEO Paul Polman said Unilever's food arm had shown signs of improvement. He pointed to the success of Knorr Jelly bouillon, which he said would be generating EUR100m in sales by the end of the year. However, the Unilever chief admitted he wanted more from what is the company's second-largest unit, behind personal care.

Price increases have put pressure on Unilever's spreads sales volumes, the company admitted. However, price hikes need not always be a negative. Over in the US, Hershey, for one, has claimed to see the benefits of price increases in recent months. Hershey said what it called "net price realisation" increased 6% in the second quarter, which although it put pressure on its volumes, was better than expectations and had led to the US confectionery giant upping its profit forecast for 2012.

Hershey said consumers had "adjusted well" to the price hikes and, although it faced some concerns over the outlook for its core chocolate business (concerns it brushed off), the company was able to reflect it believed the rate of growth in the US confectionery category had risen to a "new normal".

There is, however, no such optimism in another part of the US food sector - meat and poultry. The worst drought in the US in 50 years has hit corn and soybean yields and fuelled the prices of the commodities, key feed ingredients for livestock and poultry. The US government said last week the drought could push up food prices into next year and processors are warning the prospects of soaring feed costs and weak consumer spending could put pressure on the sector. Today, the industry will hold a teleconference to announce it will be seeking help to tackle the situation: keep your eye on our pages for full coverage of the event.

Until next time...

Dean Best
Managing Editor
Web: http://www.just-food.com
Email: editor@just-food.com
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