Danone to up Russian stakes
two of its Russia-based dairies. The move has been influenced by
the company's increase in profits in the country, which is
currently expanding at an estimated 30 per cent per year.
Danone says that it plans to install additional equipment at the company's Chekhov and Togliati plants. At the Chekhov plant the investment will increase its current dairy output by 10 per cent which will mean the dairy has the capacity to produce 18,000 metric tonnes of dairy products a year. The company expects production capacity at its Togliati dairy to increase 15 per cent from 60,000 tones.
In 2003 the dairy company's Russian sales rose 23 per cent, which took the company's market share in the country up to 6.6 per cent in terms of volume and 15.2 per cent in revenue. Danone has stated that it hopes to increase its market share to 20 per cent by 2008.
Danone's decision to expand its existing dairy business in Russia comes shortly after it announced that it would not be continuing discussions with leading Russian dairy producer Wimm-Bill-Dann. The two companies had been rumoured to be in talks over a lengthy period - allegations which were eventually acknowledged by both companies. However, towards the end of last year Danone said that talks concerning a $1 billion takeover of WBD had broken down.
At the time it was widely reported that a disagreement in price had been the main cause of the break down in discussions, but both parties did concede that discussions may resume at any time. However, Danone's plans to invest in its existing business in Russia could well mean that talks will be postponed longer than originally anticipated.
European investment in the Russian dairy market seems to be driving the expansion of the sector. In 2002 the European bank for Reconstruction and Development (ERBD) joined forces with Danone to invest €6 million in the Russian dairy industry. The investment is part of an ongoing plan that is aimed at increasing production and improving quality of dairy produce in the country.
Next month the Russian government will decide if it will increase the duties paid on cheese imports to counteract the growing importance of European cheese on the Russian market.
Analysts believe this will hold little benefit for the Russian producers, as European companies - such as Danone - are choosing to set up factories in Russia and will eventually stop imports altogether.
Danone expects that by 2005 it will be able to completely replace imports of dairy products with local production. This has been reflected in the level of Danone's own dairy imports, which have fallen in recent years as a result of an increase in its local production in Russia.
