Today, the world’s largest yoghurt maker, Danone, announced plans to cut €1bn ($1.1bn) in costs by 2020 to cope with a “steep rise” in milk prices this year.
As well as owning Actimel and Activia, Danone boasts an extensive portfolio of brands including Evian bottled water.
Milk prices are set to increase in the “mid-single digits” in Europe, and even more in Latin America and Russia, the French company said in its annual results released today.
Economic conditions will remain volatile and uncertain in 2017, with “persistently fragile or even deflationary consumer trends in Europe,” a Danone spokesperson said.
— Bloomberg (@business) 15 February 2017
Fluctuating milk prices are a problem, particularly in Europe, which is one of the world’s leading milk producers, accounting for about a quarter of total output.
Last March, British dairy farmers protested against the sharp swings in the market price of milk.
In December, the average UK farm gate price was 26.2p a litre, a nine percent increase on the previous year.
Danone has certainly felt the effects of unpredictable milk prices.
The Paris-based company’s like-for-like sales increased 2.9 percent in 2016, the slowest pace in nearly 20 years, dropping 3.9 percent in the fourth quarter in its dairy division alone.
Danone said it was targeting profit growth this year of more than five percent in recurring earnings per share, down from 9.3 percent in 2016.
“While price increases may be unwelcome to Danone and ultimately consumers they are essential in order to ensure a sustainable supply base after one of the toughest times for dairy farmers in recent years,” Chris Walkland, a market analyst specialising in the dairy sector told Verdict.