After integrating the DPA operation, the group will invest in higher value-added lines

04/19/2024

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Emmanuel Besnier — Foto: Gilson de Souza/IDT

Lactalis, the world’s largest dairy company, plans to consolidate its leadership in Brazil, targeting a market share of 15% by 2028—up from 11% last year. In the short term, the French company will focus on integrating the operations of DPA Brasil, a venture created by Fonterra and Nestlé. The R$700 million deal, completed in December 2023 after receiving approval from Brazil’s Administrative Council of Economic Defense (CADE), marks a significant step.

The company aims to increase its milk processing volume from 2.5 billion to 3.5 billion liters per year by 2028. In terms of dairy sales, Lactalis seeks to boost its market share from 13% in 2023 to 20% within five years.

“We see significant growth potential for our group in Brazil. Therefore, we are investing substantially in Brazil compared to its current contribution to our overall revenue, emphasizing its importance as a priority market for us,” Lactalis CEO Emmanuel Besnier told Valor. On Tuesday (17), the executive visited the operations of Itambé, which belongs to the group, accompanied by French journalists.

Lactalis has operated in Brazil for 10 years, investing €1.3 billion in acquisitions and €300 million in enhancing milk productivity, quality, and product development. The company owns 16 brands in the country, including Elegê, Itambé, Cotochés, Parmalat, and Batavo. Last year, sales totaled €2.5 billion.

Currently, the Brazilian operation accounts for nearly 10% of the group’s global revenue, according to Lactalis CEO in Brazil, Patrick Sauvageot. In 2023, Brazil was the fifth largest market for Lactalis, trailing behind France, the United States, Canada, and Italy. In the first quarter of 2024, Brazil surpassed Italy in sales.

For 2024, Lactalis’s priority is to integrate the DPA operation properly. “We’re going to keep the company independent but look for synergies with the group’s other activities,” said Mr. Besnier. The acquisition adds the Chandelle, Chamyto, and Chambinho brands to Lactalis’s portfolio, along with the rights to use the Nestlé brand on refrigerated products. DPA has two factories, in Garanhuns (state of Pernambuco) and Araras (state of São Paulo), eight distribution centers, and employs 1,300 people. In 2023, the operation generated net sales of €361 million.

To gain long-term market share in Brazil, Lactalis has focused on creating higher value-added products. “Brazil is a big commodity market. It sells a lot of UHT milk and cheese groups that offer very low profitability,” said Mr. Besnier. The company plans to expand its range of fine cheeses, yogurts, and other dairy products with higher added value.

Mr. Sauvageot noted that Lactalis had also felt the impact of increased imports of powdered milk from Argentina and Uruguay into Brazil and the consequent drop in dairy prices. “We think that the whole chain needs the government’s help to ensure the improvement of the competitiveness of dairy production in the country,” he said.

Lactalis and other industry players, including cooperatives, recently proposed that the federal government increase the refund rate for PIS and Cofins—taxes on business revenue funding social security and healthcare—from 50% to 100%. In exchange, the industrial companies would boost the percentage of credits earmarked for investments in productivity improvements from 5% to 10%. He estimates that this would raise investments from R$110 million to R$440 million per year, on average. He explained that since the 2015 implementation of a rule allowing PIS and Cofins tax credits to be returned in exchange for investments, industries have launched over 1,800 projects. These projects represent investments exceeding R$900 million and have benefited more than 168,000 producers.

*Por Cibelle Bouças — Belo Horizonte

Source: Valor International

https://valorinternational.globo.com/