As Boycott Curdles Sales, Danone Goes to Moroccans for Solution

CASABLANCA (Capital Markets in Africa) – French food giant Danone is asking Moroccan cattle farmers and consumers to decide for themselves how much to charge for the fresh milk its Moroccan unit produces, in an effort to defuse a boycott that’s sent dairy prices and sales plunging.

Chief Executive Officer Emmanuel Faber made the announcement during a quick visit to Morocco, where he said he talked with cattle farmers, bloggers and homemakers, and “listened to the legitimate concerns behind the boycott” of Centrale, which is almost wholly owned by Danone.

The announcement, coupled with Faber’s rare visit, signaled that parent company Danone is taking command of the boycott two months after Central failed to end it. When he laid out the plan late Tuesday, Faber stood alone on stage, while Centrale executives sat in the audience and declined to elaborate.

Centrale’s milk sales have fallen by more than 50 percent since the boycott began, Faber said. Within weeks, the Moroccan unit will abandon its target profit margin on fresh milk, and leave the price-setting to cattle farmers and consumers, he said.

“It’s our long-term plan to lower prices and keep milk affordable,” said Faber, while noting that a significant amount of sales volume would be needed for the plan to succeed. He declined to say what would happen if the proposed price would fail to offset the effects of the boycott.

Centrale is Morocco’s biggest dairy producer and the main revenue generator for Danone in Africa and the Middle East. Fresh milk accounts for about half of Centrale’s revenue.

Consumers frustrated with the government’s economic policies and rising prices have responded en masse to the boycott call, which followed a government crackdown on protests. While Morocco’s inflation rate is one of the lowest in the region, and the country has been spared much of the post-Arab Spring violence that gripped other nations, price increases are grazing a five-year high, unleashing social unrest that has worried the government.

Danone stepped in after Centrale’s own response to the boycott antagonized consumers and cattle farmers both. When the boycott began, a senior company executive likened it to treason, triggering an uproar on social media that forced the company to apologize. Its offer to discount milk prices by 14 percent wasn’t enough to end the sanctions, and in late May, it cut milk purchases from about a quarter of the country’s 120,000 dairy farmers.

Faber declined to say how he planned to turn around the fortunes of Centrale, which for years has been losing market share to local rivals.

“Danone will not quit Morocco,” Faber said. “The Centrale brand has its place in Morocco.”

Source: Bloomberg Business News