French dairy giant has been in the news for allegedly cheating farmers back home, for its secretive business model and for the quality of its products
On March 27, 2019, the Competition Commission of India approved the proposed takeover of Prabhat Dairy’s subsidiary, Sunfresh Agro Industries, by Tirumala Milk Products, a subsidiary of French multinational Lactalis for Rs 1,700 crore.
Prabhat Dairy has a network of more than 75,000 farmers in Maharashtra that collects around 200,000 litres of milk every day.
The dairy’s takeover was the second Indian acquisition by Lactalis, the world’s second-largest dairy multinational. In 2014, it took over Hyderabad-based Tirumala Milk Products Pvt Ltd for Rs 1,750 crore. Tirumala marked Lactalis’ entry into the Indian market.
The increasing footprint of Lactalis may not be received well by a section of Indian dairy farmers as well as consumers. Lactalis mainly produces cheese, milk and butter, with brands including President, Bridel, Galbani and Lactel.
The multinational is quite unpopular among French farmers, who are very reluctant to give their milk to it. They complain of the firm intentionally procuring milk at lower prices despite making huge profits. In August 2016, French dairy farmers started a nationwide protest against Lactalis.
French farmers’ Association, Confederation Paysanne, has appealed to the highest French financial court over a report showing Lactalis hid its profits and artificially inflated debt. It said Lactalis could have given 12 cents more for every kilogram of milk during the price crash of 2015 and 2016. But it hid funds and showed debt.
Maxime Renahy, a former agent of France’s external intelligence agency, who specialises in tax cases, made a report in which he accused Lactalis of hiding profits of €2.2 billion in 2015 and 2016 when milk prices had crashed globally.
The report claimed that the Lactalis created provisions for milk purchases booked to accounts held by Luxemburg Subsidiary Nethuns, which artificially inflated the group's total debt. Lactalis rejected the allegation but didn’t show up its balance sheet.
The French dairy giant has also been in the spotlight in the dairy business world for its secretive business model. Lactalis is owned by the Besnier family, the fifth richest in France, with a combined wealth of $18.6 billion. Emmanuel Besnier, Lactalis chief executive for 19 years, and his siblings are the third generation of the family to control the business.
Lactalis does not disclose financial figures. Barring one occasion in Italy, it has never shared its balance sheet. In 2011, Lactalis bought Italy’s largest dairy company Parmalat. “Italian law forced Lactalis to share its balance sheet as Parmalat was a listed company on the Milan Stock Exchange; otherwise, in other countries, it chose to pay a onetime fee to bypass laws,” says a Berlin-based senior dairy business expert, who doesn’t wish to be named. In 2018, Lactalis decided to move the headquarters of Parmalat to France following the Italian company’s delisting from the Milan stock exchange.
Besides farmers, consumers are also the victims of Lactalis’ secretive business.
In December 2017, Lactalis was in the throes of another controversy when its baby milk product was found to be contaminated with Salmonella bacteria, which caused many children to fall sick. Salmonella causes severe diarrhoea, stomach cramps and vomiting, which are potentially dangerous for babies and the elderly.
At the time, there were reports Lactalis had tried to hide the fact that Salmonella had been discovered at its manufacturing unit. Later in January 2018, the company brought back 12 million packets of its baby food from the rest of Europe, Pakistan, China and Bangladesh.
Earlier, France’s competition regulatory body had fined Lactalis €192 million for colluding with other French yogurt producers (representing 90 per cent of the country’s yogurt manufacturers) to push up yogurt prices in France between 2006 and 2012.
Europe’s interest in India
Lactalis is the latest European multinational to enter the Indian dairy market. In 2011, multinationals like Danone and the Carlyle Group had invested in some Indian dairy companies. But India had not opened its dairy market, which made them opt out.
Recently though, Danone bought Mumbai-based Drums Food International that sells the popular brand of Epigamia yogurts.
As the western market has saturated, these multinationals have been targeting developing and poor countries in Asia and Africa. Recently, African farmers have protested in front of the European Union’s headquarters in Brussels against the unabated export of cheap milk to African countries, which has destroyed local dairy industries.
According to the World Dairy Companies Report, the international dairy industry has consolidated significantly in the last two decades. The top 20 dairy companies represent 36 per cent of the total global market for dairy products. Small and medium-sized dairies account for the remaining 64 per cent.
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