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. Last Updated: 07/27/2016

Wimm-Bill-Dann Scheme Snubbed

Beverage retailing powerhouse Wimm-Bill-Dann is not milking its Molochniye Reki dairy deal for all its worth — and it’s starting to get nervous about its market share.

Molochniye Reki, or Milk Rivers, is a pioneering investment program enabling 55 different agricultural concerns in the Moscow suburbs to pay for new European Union-standard equipment with the milk it produces.

Wimm-Bill-Dann, together with leading Swedish supplier of dairy-producing equipment DeLaval, created the three-way Molochnie Reki scheme last year, and it seemed like a good one: DeLaval would provide small local dairies with $6.5 million worth of new equipment to improve their milk production. Wimm-Bill-Dann would then pay DeLaval cash for the equipment. And the local dairies would pay Wimm-Bill-Dann in raw milk, which Wimm-Bill-Dann would then process, package and market under its brand name.

But now Wimm-Bill-Dann, which accounts for about half the retail milk market in the Moscow region, says the local dairies in the scheme aren’t providing as much milk as it needs. The dairies say the reason is that they have started selling milk to Wimm-Bill-Dann competitors, who are offering up to 180 percent more than Wimm-Bill-Dann is paying.

Mikhail Schemerov, director of Lumol, one of the 55 dairies in the scheme, said he is selling to Wimm-Bill-Dann competitors Ehrmann, Campina and Danone because Wimm-Bill-Dann simply isn’t paying enough. Schemerov said the market price for a liter of milk should be equal to the going rate for No. 80 gasoline or diesel fuel — currently 7 rubles to 7.5 rubles per liter. Over the past month however, Schemerov said, Wimm-Bill-Dann paid on average just 4 rubles to 5 rubles per liter.

During the same period, Ehrmann, Campina and Danone paid its producers 2 rubles to 3 rubles more than Wimm-Bill-Dann, forcing certain producers in the scheme to start supplying milk to other companies, said Moscow region Deputy Agriculture Minister Vladimir Poshlyakova.

The president of Wimm-Bill-Dann, Vladimir Scherbak, said the Molochniye Reki project allowed the company to use exclusively local raw materials and reduce the amount of dried milk it uses from 30 percent to 10 percent. But because the dairies in the scheme are selling to its competitors, Wimm-Bill-Dann is short of supplies.

Yury Prokhorov, Wimm-Bill-Dann’s director for raw materials, said that new production lines at its Tsarinsk factory have increased the company’s daily demand to about 2,000 tons, while the Molochnie Reki suppliers provide only 800 tons to 1,000 tons.

Prokhorov said he is worried about supplies."Where is our money going? All our factories are concerned by the current situation," he said.

Scherbak said Wimm-Bill-Dann would deal harshly with any contractual violations and didn’t rule out the possibility of breaking up the partnership. In other words, the agricultural concerns would pay for the equipment supplied not in milk but in cash.

Nikolai Feoktistov, general director of the Rif company, which coordinates the delivery of the milk produced at nine concerns in the Ryazan region, said Wimm-Bill-Dann’s pricing policy is wanting. When the price of oil shot up, Feoktistov said, Wimm-Bill-Dann reacted weakly to the market and failed to foresee milk producers would find new clients if Wimm-Bill-Dann stuck to its old pricing policies.

Rif, which has not participated in the program, used to work exclusively for Wimm-Bill-Dann, but now it supplies milk to other factories, Feoktistov said.

Wimm-Bill-Dann has acknowledged that it made a mistake by paying too little and, as of November, will increase the price it pays to 6.3 rubles per liter.

Despite the problems, Wimm-Bill-Dann said it won’t give up the Molochnie Reki program. On the contrary, next year it plans to expand into the provinces where it has its own milk factories — Novosibirsk, Nizhegorodsk and the Krasnodar regions.