Companies appeal to PM Dmitry Medvedev as union leaps to their defense. Source: RIA Novosti/Alexey Kudenko
Russian Agriculture Minister Nikolai Fyodorov has accused large international dairy producers Danone and PepsiCo of illegally using vegetable oils in their products.
According to Fyodorov’s statement, the government subsidizes the production of milk, then the international companies buy it, add palm oil and transform it into a dairy product, thus misleading the government.
"This dairy product contains only 10-20 percent milk, the rest is vegetable oil," Nikolai Fyodorov told the TASS news agency. In such a manner, in the minister's words, the companies reduce the volume of the purchased milk.
Union and producer respond
"The cause of the scandal was primarily the escalation of relations between Moscow and the West," says Alexei Kozlov, chief analyst at UFS IC.
According to Kozlov, international companies possess a big share of the Russian dairy market. About half of the produced milk comes from companies belonging to the French Danone concern and the American PepsiCo.
"It is perfectly natural that a foreign producer that has a big share of the market reacts so sharply to the words of an official, which can have a negative impact on its image," adds Kozlov.
In response to the minister's accusations, Soyuzmoloko, a union of large Russian dairy producers, of which Danone and PepsiCo are a part, has appealed to Prime Minister Dmitry Medvedev with a request to evaluate the accuracy and ethics of the Agriculture Minister's statement.
"In our company's portfolio there is only one product that is produced with the use of vegetable fats - the glazed curd, which is produced on a contract with a third party," says Danone's official statement. "Information about its ingredients is written on the container and is available for consumers."
According to the company, the share of this product in Danone's overall sales is insignificant, less than 0.4 percent, and not one of Danone's dairy factories in Russia buys a gram of vegetable oils.
The participation of foreigners
At the end of 2010, Danone merged its dairy business with the Russian company Unimilk. In total the new company includes 30 dairy factories and children’s food plants.
After the merger the new group became Russia's largest dairy producer, and since the beginning of its activity in Russia the volume of Danone's investment has reached $1.8 billion.
PepsiCo entered the Russian dairy market in 2011, when it bought the Russian producer Vimm-Bill-Dann. It was around the same time that the company also began operating in the dairy foods segment in the United States. In 2012 (more recent data is not available) PepsiCo had about 500 large direct suppliers of raw milk in Russia, from whom it bought about 1.8 million tons.
"The national dairy producers’ union is outraged by the Agriculture Minister's statement regarding the quality of large companies' dairy production," Soyuzmoloko's press office told RBTH.
The union was formed in 2008 in order to protect the interests of dairy producers in Russia, and currently represents more than 3,000 production and processing enterprises, including Danone and PepsiCo.
Soyuzmoloko, according to its own data, represents almost 70 percent of Russia's dairy industry. The union said that Rospotrebnadzor, the federal monitoring agency, constantly checks the production on the market.
"Not one of Rospotrebnadzor's checks has shown that these (foreign) products contain a maximum of 20 percent real milk and that the rest is a mixture of coconut, palm oil and other additives,” the union said.
“For many years these producers have been an example of companies following all the legislative requirements, of companies that have strict internal procedures to guarantee the quality and safety of the product."
According to the union, the problem of counterfeit production does exist. However, as investigations have shown, usually the violations are made by small producers who do not have a reputation and are not trying to win over consumers, not by the large companies, for which there is absolutely no gain in discrediting themselves in the eyes of consumers.
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