Global food firms quit Russia but Nestlé, Danone among group keeping up essentials
28 March | Ukraine
The Ukraine crisis has led to a flood of packaged food companies scaling back operations in Russia or exiting the country entirely as the conflict enters a second month.
Some, including Nestlé, have drawn criticism within Ukraine and beyond for maintaining “essential” supplies in Russia as a humanitarian gesture. But the world’s largest food maker is not alone in its stance, with other majors such as PepsiCo, Danone and Kellogg adopting similar stances.
Nestlé, however, has changed its position on Russia since the start of the invasion and in the wake of criticism from Ukraine President Volodymyr Zelensky and Prime Minister Denys Shmyhal.
Almost two weeks into the conflict, Nestlé said it would suspend capital investment and advertising in Russia but would continue to sell “a diverse range of essential food products [that] includes baby food and breakfast cereals”.
After Ukraine’s criticism, Nestlé sought to defend that position, saying its Russian operations “do not make a profit”.
Nevertheless, on 23 March, the company altered its stance, “suspending renowned Nestlé brands such as KitKat and Nesquik, among others” in Russia, at the same time as continuing “providing essential food, such as infant food and medical/hospital nutrition”.
In Ukraine itself, poultry processor MHP, which is responsible for around half of local chicken production, is struggling to keep up supply after Vladimir Putin’s forces invaded the country on 24 February. The London-listed business suffered a fire caused by the shelling of a warehouse in Kvitneve destroying US$8.5m of chicken products.
MHP has warned the financial implications of the conflict could run into tens of millions of dollars and has also turned to bondholders to ward off a claim on assets following a debt default.
For the rest of the world, which was already battling with the fall-out from Covid-19 with supply chain bottlenecks, labour shortages and higher food prices, Russia’s invasion of Ukraine has raised widespread concern about food security, with both countries major exporters of commodities such as wheat. Disruption to oil and gas supplies from the war, and international sanctions on Russia, are also exacerbating rising energy prices, putting food affordability front and centre.
Nordic food groups Fazer, Raisio and Valio – all based in Finland – were among the first to react to Putin’s encroachment into Ukraine, announcing early in March they would halt exports to Russia, and, where applicable, cease doing business in the country. Orkla in Norway followed.
Denmark-based dairy heavyweight Arla Foods suspended Russia imports and exports and halted its local operations. Later in March, New Zealand’s Fonterra, a key dairy exporter, said it would exit its Unifood joint venture in Russia.
Despite continuing to supply essentials, Unilever, PepsiCo, Mars and Kellogg have all suspended investment in Russia and halted advertising, while Cereal Partners Worldwide – a venture between Nestlé and General Mills – stopped activity all together. Mondelez International said it would maintain “basic offerings” while scaling back its business in the country.
Ferrero, meanwhile, suspended non-essential business in Russia, while spices maker McCormick & Co. paused operations. McCain Foods opted to scrap a plan to build a factory in the country. Pasta maker Barilla has maintained production.
Main image: Russia Samara November 2019: Baby food on shelves in a children's goods store. Baby porridge Nestle. Text in Russian: children's, porridge, multigrain, five cereals, dairy-free
Credit: Tramp57 / Shutterstock.com
14 March | Ukraine
UN agency sounds food inflation warning from Russia-Ukraine crisis
The United Nations’ agricultural body warns disruption to world grain supply as a result of the Russia-Ukraine crisis could push up food and feed prices by as much as 22%.
Russia and Ukraine are “significant” producers of barley, wheat and maize, accounting for 19%, 14% and 4% of global output, respectively, according to the UN’s Food and Agriculture Organization. More than half of the world’s sunflower oil production came from the two countries in the study periods 2016-17 and 2020-21, it said.
Meanwhile, rapeseed and soybean production is “comparatively more limited” at 6% and 2%.
“FAO’s simulations gauging the potential impacts of a sudden and steep reduction in grain and sunflower seed exports by the two countries indicate that these shortfalls could only be partially compensated by alternative origins during the 2022/23 marketing season,” the organisation said.
The capacity of many of these origins to boost output and shipments may be limited by high production input costs. Worryingly, the resulting global supply gap could push up international food and feed prices by 8% to 22% above their already elevated levels.”
Rising crude oil prices could also help foster a “considerable supply gap” in grain and sunflowers seeds from Russia and Ukraine, which “would keep international prices elevated well above base-line levels”, the FAO noted, even as other countries boost output.
Disruption to food exports from both countries could also “exert additional upward pressure on international food commodity prices”, the FAO said, exposing “economically vulnerable countries”.
“FAO’s simulations suggest that under such a scenario, the global number of undernourished people could increase by eight to 13 million people in 2022/23, with the most pronounced increases taking place in Asia Pacific, followed by sub-Saharan Africa, and the Near East and north Africa.”
The organisation added: “The very high likelihood of disruptions to Ukraine’s grain and oilseed harvests, combined with the threat of trade restrictions on Russia’s exports of cereals and other basic foodstuffs (as reflected in either record or near-record benchmark price quotations) would jeopardise the food security of many countries around the world, and of discern, to many economically vulnerable countries.”
Rising fertiliser and energy prices could also inflate other input costs, resulting in higher production costs, and, “eventually” higher food prices, the FAO said.
“They could also lead to lower input use levels, depressing yields and outputs in the 2022/23 crop season, and giving further upside risk to the state of global food security in the coming years,” it noted.
The FAO also outlined Russia’s contribution to the global fertiliser market – the top exporter of nitrogen fertilisers and the second-largest supplier of both potassic and phosphorous fertilisers.
It said 25 countries have a dependency rate on those three products of 30% “or more”, while in “many countries” in eastern Europe and central Asia, it stands at “well over 50%”.
15 March | Ukraine
Russia moves to shore up domestic food supply through export curbs
Russia’s government has introduced temporary restrictions on the export of grain and sugar in an attempt to shore up supplies in its domestic market.
Moscow announced it would ban shipments of wheat, rye, barley and maize to neighbouring Eurasian Economic Union (EAEU) states until the end of June.
The executive order also includes a longer ban, until 31 August, on all exports of white and raw sugar.
A statement on the Russian government’s website said the moves had been made “to protect the domestic food market in the face of external restrictions”.
To support imports of sugar into the country, Russia has set up a tariff exemption up to a volume of 300,000 tons, the TASS news agency reported.
Russia and Ukraine are among the world’s largest exporters of wheat. When it comes to production, China is the country that grows the largest amount of wheat, followed by India, Russia, the US, France and Ukraine.
Independent Russian news agency Interfax reported government statistics which revealed that Russia exported 28.1m tonnes of grain from 1 July 2021 to 10 March 2022, a figure that does not include exports to EAEU countries this year.
According to Reuters, Moscow is to continue issuing special export licences to traders within its quota.
Meanwhile, Moscow has sought to prevent the stockpiling of groceries at home by reassuring local consumers there is no risk of a food shortage despite the sanctions imposed on the country following its invasion of Ukraine.
TASS quoted Russia's Deputy Prime Minister Viktoria Abramchenko saying: “Russia provides itself with basic food products and continues to expand import supplies to saturate the market with various products and increase the range for the Russian consumer. You should not heat up artificial demand with purchases for future use.”
She added: “We will reorient the market and establish mutually profitable trade, expand our partnership network with friendly countries.”
David Jackson, director at agribusiness research group LMC International, said: “This is not quite another stick with which we can beat Russia. Argentina looks to be doing something similar, as has Indonesia with cooking oil exports. The general pattern, war or not, is that Russia, Argentina and Indonesia are using export controls to limit the rise in domestic prices, with the unintended consequence that this drives up prices in the wider world market even further.
The market may also be at the point where the impact of Russian export controls may be limited – sanctions on banking and probably shipping as well have already constrained Russia’s ability to make export sales by sea, and Kaliningrad, a sizeable Russian enclave and export port on the Baltic Sea, is cut off. The main routes left open are overland to China and Central Asia, which account for a minority of Russian grain trade.”
11 March | Ukraine
Russia mulling plans to seize assets Western firms leave behind
Russia is reportedly considering ways to seize local assets owned by Western companies that have halted operations in the country.
In recent days, a flurry of international businesses have announced they will pull out of Russia after its invasion of Ukraine.
Vladimir Putin was quoted by media outlets including The Financial Times and The Guardian as saying the Kremlin would look at legal avenues to take hold of assets left behind.
“With regards to those who are planning to close their production facilities, we must act decisively … By no means must we allow any harm to local Russian suppliers,” Putin said.
Moscow would look to “introduce external management and then transfer these enterprises to those who actually want to work,” he added. “There are enough legal and market instruments for this.”
Bloomberg reported Russia’s Economy Ministry has outlined a proposal for Moscow to take temporary control of departing companies if their foreign ownership is more than 25%. Under the plans, a court would weigh up requests to bring in external management.
Washington has hit out at the idea. Jen Psaki, the White House’s official spokesperson took to Twitter to outline US opposition.
“Any lawless decision by Russia to seize the assets of these companies will ultimately result in even more economic pain for Russia. It will compound the clear message to the global business community that Russia is not a safe place to invest and do business,” she wrote.
14 March | Ukraine
Biden bans US imports of seafood from Russia
US President Joe Biden has signed an order to ban imports from “signature sectors of the Russian economy”, including seafood.
The embargo is part of Washington’s efforts to “ramp up the economic pressure on Putin and to further isolate Russia on the global stage”, Biden said.
There is also set to be a ban on the export of luxury US goods to Russia. “They’re not the last steps we’re going to take,” Biden said.
According to data from US government agency The National Oceanic and Atmospheric Administration (NOAA), Russia was the 11th biggest shipper of seafood products to the US in volume terms and tenth-largest in value terms in 2021.
Russia exported just short of 48.9m kilograms of seafood to the US last year, the NOAA’s figures show. The shipments were worth US$1.2bn.
In volume terms, China was the biggest exporter of seafood to the US in 2021, shipping 397m kg. In value terms, Canada is the largest supplier, with seafood exports worth $4.87bn last year.
The US President also wants Russia’s status as a ‘most favoured nation’ revoked. He needs Congress to vote through the proposal.
“A most-favoured-nation status designation means two countries have agreed to trade with each other under the best possible terms — low tariffs, few barriers to trade, and the highest possible imports allowed. In the United States, we call this “permanent normal trade relations” — PNTR — but it’s the same thing,” Biden said.
“Revoking PNTR for Russia is going to make it harder for Russia to do business with the United States. And doing it in unison with other nations that make up half of the global economy will be another crushing blow to the Russian economy that’s already suffering very badly from our sanctions.”
7 March | Health and nutrition
Unilever sets healthy food course in wake of criticism for lagging peers
Unilever has unveiled an initiative to measure and set nutritional targets for the consumer goods giant’s brands amid criticism it lags some of its food manufacturing peers.
The Marmite spread and Magnum ice-cream owner will work with the London-based charity and ESG advocate ShareAction to set new healthy nutrition benchmarks for its food and beverage brands in a project encompassing 16 global markets.
Unilever will measure its performance against six “government-endorsed nutrient profile models”, such as the high fat, salt and sugar (HFSS) initiative in the UK and NutriScore in wider Europe, with its first assessment to be published in October.
The Hellmann’s mayonnaise maker will set “timebound targets” for plant-based sales and to cut salt, sugar and calories across its portfolio, as well as increasing the sale of “healthier positive nutrition products”. The new goals will be published by October.
ShareAction and its Healthy Markets Initiative, which aims to reduce childhood obesity, was among a 100-strong group of individuals and 11 institutional investors with US$125bn in assets that criticised Unilever for trailing peers on healthier food and beverages.
The group claimed the owner of the Knorr brand of soups and cooking aids only had 17% of its portfolio dedicated to such food and drinks, compared to 61% for Danone, 43% for Nestlé, 36% at Kraft Heinz, 29% for General Mills and 26% at Kellogg.
Hanneke Faber, the president of Unilever’s Foods & Refreshment division, said: “We welcome the constructive dialogue we have had with ShareAction and the Healthy Markets Initiative.
“We share a common belief in the importance of having an ambitious long-term strategy for nutrition and health, and that companies should publish ambitious targets to deliver against.”
The announcement came after this year’s reassessment and reshuffle of Unilever’s divisional set up in the wake of a failed bid for the consumer-health business of GlaxoSmithKline, and a renewed commitment to food and refreshments. It was also singled out by investor Terry Smith, the founder of London-headquartered Fundsmith Equity, over its ESG credentials. Smith claimed in January Unilever had “lost the plot”.
Unilever has said it is the “first global foods company” to report its nutritional performance by both volume and sales revenues “against at least six different government-endorsed Nutrient Profile Models (NPM), as well as its own highest nutritional standards (HNS)”.
Other benchmarks include the Health Star Rating in Australia and New Zealand, Front of Pack logos in Chile, Healthy Choice logos in Singapore, and the global platform Choices International.
Around 25,000 individual Unilever products will be covered by the project in the US, UK and Ireland, the Netherlands, Belgium, Italy, France, Germany, Austria and Switzerland. Also amongst the 16 markets are Brazil, Mexico, Russia, Turkey, South Africa, Indonesia, India, China and Australia.
Unilever said it will update and strengthen its specific targets that expire at the end of 2022 and will “consider both HNS and at least six different NPMs to determine which is the most stretching target benchmark to increase sales of healthier products in a way that maximises positive impact for global consumer health”.
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Nestlé strikes another nutrition deal with majority stake in Orgain
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Investor L Catterton enters China pet-food market with Shanghai Enova investment
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8 March | Corporate
Danone adopts fix-or-sell approach as tenth of portfolio up for “rotation”
Danone’s recently-installed CEO, Antoine de Saint-Affrique, has adopted a fix it or flog it approach to breathe new life into parts of the French giant’s portfolio.
Laying out the path for organic growth and margin accretion at Danone’s capital markets day on 8 March, the former Barry Callebaut chief said 10% of Danone’s portfolio could be up for “rotation”.
“Either we fix the underperformers or they will go out. We expect a rotation of about 10% of assets or sales,” de Saint-Affrique explained during a Q&A session with analysts, as he set out a target of 3-5% organic sales growth for 2022 through 2024 and a recurring operating margin for this year of “above” 12%.
However, de Saint-Affrique stated the strategy needs to be well thought through “so that all the dis-synergies you’re getting, the untradeable, are being compensated for by something else but it’s done in a very methodical way. Otherwise, you destroy value rather than trade value”.
Pressed by one analyst on whether the plan would entail expanding the portfolio externally, the CEO responded: “It’s the rotation of a percentage of our sales in rotation, which is a mix of acquisitions and disposals.
“One of the problems we are facing in terms of competitiveness is [the] underperforming of some assets, which have been underperforming for a long time. So we will be very determined. If we cannot fix them, we will sell them and then we have no taboo or we have no sacred cows.”
Last year, Danone registered like-for-like sales growth of 3.4% with sales reaching EUR24.2bn (US$26.57bn). While recurring operating profit edged up 0.6% to EUR3.3bn on a LFL basis, the margin dropped nine basis points to 13.7% and was down 30 points in reported terms.
For 2023-24, Danone said today it expects recurring operating income to be “growing faster than like-for-like net sales”, and from 2025, the company hopes “to progress towards mid-teen” margins, de Saint-Affrique clarified.
Vikram Agarwal, Danone’s newly-appointed COO in charge of purchasing, manufacturing and the supply chain, outlined the simplification process he plans on the road to increased efficiencies and to offset the ongoing supply chain disruptions.
He aims to simplify the variety of ingredients used in Danone products, as well as the packaging inputs, in a consolidation move to get more “buying leverage and more manufacturing efficiencies”.
Agarwal added in terms of logistics: “Synergising the different supply chains we have, which have evolved historically with four divisions into one, and actually using that as a platform to be more value-added in our logistics and distribution, rather than just operating parallel chains.”
22 February | Shelf Stable
Kraft Heinz forms venture with alt-protein firm NotCo
Kraft Heinz is to team up with plant-based foods group NotCo to launch products using artificial intelligence.
NotCo, based in Chile, says it uses an AI programme – dubbed Giuseppe – to analyse plants to “come up with unique combinations that replicate animal-based products almost to perfection”.
The company, which has attracted more than US$350m in investment, sells plant-based meat and dairy products in markets including Chile, Mexico and the US. NotCo’s inaugural product was a plant-based alternative to mayonnaise, Not Mayo, which is made from garbanzo beans.
Kraft Heinz said on 22 February the two businesses are to form The Kraft Heinz Not Company, a venture to develop co-branded, plant-based products.
Asked which products the venture will initially launch, a Kraft Heinz spokesperson said: “The joint venture kicks off immediately with the goal of getting something to market in 2022. The joint venture will have a global focus. We expect to share more details on markets and roll-out plans in the months ahead.”
The new venture will be based in Chicago and have R&D facilities in San Francisco. In a statement, Kraft Heinz said the venture “will focus on plant-based innovation across numerous Kraft Heinz product categories”.
The most recent tranche of funding NotCo announced was unveiled in July. At the time, the company said it had raised US$235m in a Series D round of funding.
Investment firm Tiger Global led the round. Existing backers, including Bezos Expeditions, Jeff Bezos’ investment house, private-equity firm L Catterton and New York fund Enlightened Hospitality Investments took part. Formula One racing driver – and vegan – Lewis Hamilton and tennis star Roger Federer also joined the round.
Kraft Heinz, meanwhile, has developed a new initiative, dubbed Agile@Scale, to boost efficiency, make the business more agile and, through which, the company will team up with other companies in areas such as digital technology.
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