EXCLUSIVE-Danone sources whey from Asia as costs in Europe rise

"We had already started the program before the Ukraine war, and consequent supply risks and rising costs in Europe have made this even more relevant," he said. Danone is sourcing aluminium packaging, plastic, paper packaging, and ingredients such as whey and maltodextrin from outside of Europe, Agarwal said.

France's Danone is getting more whey and aluminium from parts of Asia, a top executive told Reuters, a move which analysts said could cut costs but also antagonise European suppliers. The dairy giant, which makes Activia yoghurt, Aptamil infant formula and Evian water, has largely relied on Europe for raw materials. But cost inflation that began with COVID-19 era logjams only to be exacerbated by the Ukraine war has left the industry struggling to rein in expenses and protect margins.

Danone has responded by expanding its commodities base into Asian markets including India, China and Southeast Asia, Chief Operations Officer Vikram Agarwal said. "We had already started the program before the Ukraine war, and consequent supply risks and rising costs in Europe have made this even more relevant," he said.

Danone is sourcing aluminium packaging, plastic, paper packaging, and ingredients such as whey and maltodextrin from outside of Europe, Agarwal said. But the move to source whey - the liquid remaining after milk has been curdled and strained - from outside Europe could put pressure on Danone's relationships with dairy farmers in its home country and the rest of the continent, analysts said.

Whey is a key ingredient in infant formula as well as nutritional products for the elderly. Danone has a relatively strong relationship with European dairy farmers, analysts said, but tensions within the industry are high.

"I'd say good luck with the French farmers," said Bernstein analyst Bruno Monteyne. "If they're not striking for pensions they'll soon be striking because one of their biggest customers is dealing with foreign competition." France's dairy farmers have staged protests in recent years over prices proposed by dairy firms, partly fueled by the abolition of European Union dairy quotas in 2015, as well as grievances in the livestock sector over stricter environmental and animal-welfare rules.

Danone, whose rivals include food companies Nestle and Unilever, is also working to improve its energy efficiency, Agarwal said. It has set sustainability targets including improving energy efficiency by 30% by 2025. As part of that process, 20 Danone factories are having their energy use assessed by independent consultants, he said. It is also changing product recipes and formulations to manage supply disruptions and inflation.

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