Danone is to close a dairy plant in the Russian city of Smolensk amid high raw milk prices.
Pressure on commodity costs has led the French food giant to decide to shut a site it attained through the 2010 merger of its business in Russia with local dairy group Unimilk.
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The factory, around 360km south-west of Moscow, makes cheese products under the Prostokvashino brand. It will close next month. Production will move to a plant in Domodedovo, closer to the Russian capital.
Danone, meanwhile, is mulling further investment in a plant in St Petersburg. “We are considering it but no decision has been taken,” a spokesperson for Danone’s Russian business told just-food. “The comment was made as an answer to a [local media] question on if we plan to increase production with regard to the dairy import ban in Russia. The reply was that it would depend on market situation and that we are ready to do it if necessary.”
Russia is the biggest market for Danone’s fresh dairy business. When Danone published its half-year results last month, the company said it had seen “strong inflation in milk prices” during the first six months of 2014. “This was particularly true in Russia, where inflation was especially strong. However, in most regions prices headed down at the end of the first half. Part of this inflation was offset by price increases, notably in emerging countries and more specifically in Russia,” Danone reported.
In a note to clients after the results, Sanford Bernstein analyst Andrew Wood said Danone “faces major operating challenges in its biggest fresh dairy market, given massive price increases leading to collapsing volumes which could drive growth down close to zero in H2”.
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