Nearly three months into a widespread consumer boycott of Danone fresh milk, Danone’s CEO has proposed a series of measures designed to improve transparency and allay consumer anger about milk prices.
It started on April 20th, rapidly escalated via social media. The catalyst was news that consumer prices had risen by 2.7% year on year – ironically one of the lowest rates of inflation in Africa.
Moroccan consumers, angry with what they saw as unjustified price rises and profiteering, decided to target three companies: Danone, Afriquia service stations and the Oulmes bottled water company. Afriquia is owned by the Minister of Agriculture and Fisheries Aziz Akhannouch, one of the richest men in the country.
By early June, Danone’s sales had halved and the company had cut by 30% the amount of milk it collects from the 120,000 farmers who supply it. Danone has been forced to try and process unsold milk into other dairy products, such as butter, UHT milk and milk powder.
For its part, the Moroccan government – arguably the real target of the protests – has defended Danone, stressing that the profits the company makes in Morocco are not excessive. A government spokesman has revealed that Danone’s profit margin for fresh milk is less than 20 centimes ($0.021) per litre.
The crisis has forced the company to release a profit warning: Danone Centrale, its subsidiary in Morocco, is estimated to lose 150m dirhams ($15.9m) in the six months ending June 30, down from a profit of 56m dirhams ($6.0m) in the same period in 2017.
The boycott is already having a wider effect: Danone’s 120,000 farmers support around 600,000 people (i.e. family members and dependents) and there are 470,000 people working in the dairy industry alone. Although it isn’t a target for boycotters, fuel retailer Total Maroc has seen its share price fall. Neither Oulmes nor Afriquia have revealed the impact of the boycott on their profit and loss but the impact will be significant.
Danone’s CEO, Emmanuel Faber, has been at pains to stress a key point: before the boycott, Danone was making almost no profit on fresh milk. In order to find a solution to the crisis, Faber has put forward three proposals:
- Fresh pasteurized milk under the Danone Centrale brand sold at cost price to Centrale Danone, in accordance with the Moroccan law
- Full transparency on the costs of collection, quality testing, pasteurization, packaging, transport, marketing of fresh pasteurized milk under the Danone Centrale brand
- Grocery stores and consumers form part of the governance to set the ‘fair’ price for milk
Mindful that the Arab Spring was catalysed by the protests of a humble street seller in Tunisia, the Moroccan government is keen not to test the patience of consumers.
The key question is what it can do? It may be able to cap fuel prices but there is little wiggle room in the dairy sector and not much more Danone can do to appease consumers.
Ultimately, the protests are only partly about prices. They are primarily about a pervasive sense among Moroccan voters that the government is corrupt, and serving the interests of large companies and the elite. Addressing that issue will be far more challenging.
