Business

Manufacturers of basic foodstuffs must supply Russia with biscuits and soap

FILE PHOTO: The spread of the coronavirus disease (COVID-19) in Germany
FILE PHOTO: Customers at the Edeka grocery store buy pasta as the spread of the coronavirus disease (COVID-19) continues, April 29, 2020 in Duesseldorf, Germany. REUTERS/Wolfgang Rattay

March 9, 2022

By Jessica DiNapoli and Richa Naidu

NEW YORK/LONDON (Reuters) – Manufacturers of everyday staples from Pampers diapers to Dove soap are walking a fine line by continuing to sell their products in Russia amid mounting pressure on multinationals to buck the recent Russia’s invasion of Ukraine.

McDonald’s Corp announced on Tuesday that it would close its restaurants in Russia, including its famous location on Moscow’s Pushkin Square. PepsiCo Inc, Coca-Cola Co and Starbucks Corp also stopped selling their best-known products in Russia.

But the world’s largest makers of packaged foods and household items are lagging behind some financial services firms, oil and gas companies and retailers who have pulled out of Russia entirely. The consumer goods companies argue that people in Russia rely on their products.

Procter & Gamble Co and Unilever Plc announced this week that they will continue to sell key products in Russia but will halt all new capital investment and stop advertising in the country. Unilever has suspended all imports and exports of products to and from the country.

Packaged food maker Nestle SA and dairy company Danone SA are taking similar approaches.

“I give them credit for doing better today than they did yesterday,” said Jeffrey Sonnenfeld, a Yale School of Management professor who follows major corporate exits from Russia. “The larger the deduction, the more you advance the prospects for world peace.”

Sonnenfeld added it was a “mistake” to try to minimize the damage to the Russian people by continuing to deliver basic necessities.

“There is no middle ground,” he said.

Cadbury chocolate maker Mondelez International Inc and Kimberly-Clark Corp, which makes Huggies diapers, have yet to announce plans to cut production in Russia.

“It’s not about pure profits,” said Katie Denis, a spokeswoman for the Consumer Brands Association, a trade group that represents companies like P&G and Mondelez. “It’s about, are you going to keep making things that people need? It’s different than what companies that came out earlier deal with.”

WORTH THE RISK?

Nor do companies want to appear to be harming regular Russian citizens by putting them out of work.

At least six major fast-food companies — including Yum Brands Inc’s KFC and Restaurant Brands International’s Burger King — operate more than 2,500 restaurants in Russia, mostly through franchisees, and employ tens of thousands more people, according to a tally by Reuters, who do not includes MC Donalds. So far, none of the companies has announced that they will withdraw from Russia.

Investors like the New York State Pension Fund want companies to assess whether continuing to do business in Russia is worth the risks.

Asset manager Federated Hermes urges companies in phone calls and letters to “be open and transparent about what they’re doing in Russia” and share “what decision-making process they went through to come to a conclusion” about working in the country, Hannah Shoesmith said , Director of Engagement at the firm. Federated Hermes is targeting consumer goods companies with its reach, Shoesmith said.

“We would not ask companies to just leave Russia without asking them to assess the human rights impact,” Shoesmith said. “There is a compromise that companies have to make. It’s not so black and white.”

Businesses should also “start thinking carefully about their position on taxes” paid to the Russian government, Shoesmith said.

“There are attempts to find good solutions for paying taxes,” she said. “If they pay taxes in Russia, what solutions can they find to compensate?”

Shoesmith said that in previous military coups and refugee crises, companies made payments equal to their tax bills to NGOs aimed at helping people.

“Corporate Suicide”

“There is a big trend in our industry to focus on companies with strong corporate governance and ethical standards – and that means community concerns as well,” said Jack Martin, investment manager at Oberon Investments, which owns shares in Unilever, Diageo Plc, Burberry Group Plc and LVMH Moët Hennessy Louis Vuitton SE. “It’s really corporate suicide right now not to pull out of the region.”

Joe Sinha, chief marketing officer of Parnassus Investments in San Francisco, said his firm has no direct exposure to Russian companies, instead turning to the U.S. portfolio companies it owns with more than 2% of sales in Russia to inquire about Details of their thoughts on staying or leaving the country.

“We’re not being prescriptive, we’re trying to understand their roles and choices,” Sinha said. While Parnassus supports moves like sanctions that bar Russian banks and military-related tech companies, the analysis might be different for food companies that serve consumers.

“For certain goods and services, it would harm individual citizens who have nothing to do with the regime,” he said. “There are gray areas.”

(Reporting by Jessica DiNapoli in New York and Richa Naidu in London; Additional reporting by Hilary Russ in New York and Ross Kerber in Boston; Editing by Vanessa O’Connell and Matthew Lewis)

https://www.oann.com/makers-of-basic-necessities-face-tradeoff-supplying-russia-with-cookies-soap/?utm_source=rss&utm_medium=rss&utm_campaign=makers-of-basic-necessities-face-tradeoff-supplying-russia-with-cookies-soap Manufacturers of basic foodstuffs must supply Russia with biscuits and soap

Caroline Bleakley

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