Dairy producers Danone and PepsiCo – the situation in Russia

Danone’s exit from the Russian market is the biggest and the most anticipated deal in the Russian dairy industry, Alexey Kurasov, head of the corporate finances department with the Russian consultancy Finam outlined during an Agricultural Holdings of Russia 2023 conference in Moscow.

Danone still has an opportunity to sell its Russian business, which has been transferred under temporary state management, the analysts say. To make the deal happen, the company needs to agree to a discount.

Moscow demands a 50% discount on all foreign deals after consultants selected by the Russian government have valued the business. Reports indicated that in the past months, the authorities demanded a bigger discount in some cases.

Danone is still wanting to complete the formal sale of its Russian business, Financial Times has recently reported. The company believes it can still earn money if properly matched with the right government-approved buyer.

The departure of Western businesses is expected to continue until the first quarter of 2024, Kurasov said. In addition, the analysts see ‘cautious efforts’ of investors from the Middle East and China to enter the Russian market, Kurasov said.

PepsiCo streamlines operation

Danone is not alone in its efforts to sell Russian assets. PepsiCo is in talks with Tkachev’s agricultural complex to sell its dairy plant in Krasnodar Krai, the local business newspaper Kommersant reported. However, the company plans to streamline its operation in the country, according to the publication.

During the summer of 2023, it planned to suspended operation before being transferred to the new owner.

PepsiCo’s dairy division currently runs 14 production sites across Russia. In 2022, it produced 940,700 tonnes of dairy products, 8.7% lower compared with the previous year.

Alexey Gruzdev, general director of Moscow-based think tank Streda Consulting, stated the production volumes at the Kradnodar plant were found to be insufficient and were distributed among other production sites.

Tkachev’s agricultural complex is the second-largest raw milk producer in Russia. For the company, the deal could help support business marginality, as raw milk prices in the country slumped in the first half of 2023 by 20-25%, Kommersant reported, citing the data of the Russian Union of dairy producers Soyuzmoloko.