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Brands caught up in new Cold War

News, 02 December 2014

MOSCOW: French dairy company Danone has demanded that Russia's agricultural minister retract his remarks about the quality of its products, after he accused both it and PepsiCo of using mostly non-dairy ingredients rather than fresh milk.

"In these products a maximum of 20% comes from real milk – the rest is a processed milk mixture with coconut, palm oil and other additives," Nikolai Fedorov said, according to the Itar-Tass newswire.

The Financial Times reported Danone's anger. "We are not only outraged by the official's statements but regard them as defamation, causing damage to our reputation both in Russia and around the world," the company said in a statement. It went on to demand "a public denial of these lies".

The National Union of Milk Producers Russia took Danone's side in the dispute, arguing that the problems in the Russia dairy industry were not down to likes of Danone and PepsiCo, who were in fact exemplars of compliance with legal requirements and had strict internal procedures regarding quality assurance and product safety.

The two brands appear the latest to be caught up in what Fortune has described as a "Cold War on business" which has escalated over the past nine months since Russia seized Crimea from Ukraine and a Malaysian airliner was shot down over eastern Ukraine.

Almost half of McDonald's 440 restaurants in Russia, for example, are under investigation by the authorities over alleged breaches of consumer safety regulations with nine having been temporarily closed down.

Observers have suggested there is little McDonald's could do if the Russian government decided to close all its outlets, although such a move would no doubt generate a new set of tensions for the Kremlin as the brand employs 37,000 people directly, and thousands more in the supply chain.

The new Cold War shows little signs of ending soon, not least as President Putin appears to have widespread support for his stance.

When Samuel Allen CEO of agricultural equipment business Deere, returned to the US from a recent trip to Russia, he reported that 80% of Russians thought Putin was correcting an historical wrong, "the wrong being that [Soviet leader Nikita] Khrushchev should never have given Crimea away" in 1954.

Data sourced from Financial Times, Fortune, Business Week, Slon.ru; additional content by Warc staff