UPDATE 1-Danone plans $700 mln Russian investment

Mon Mar 26, 2012 11:50am EDT

* To upgrade existing facilities, add capacity

* Russian dairy consumption lags West European markets

* Sees stable 2012 in Russia after input costs jumped in '11 (Adds quotes, background)

By Maria Kiselyova

MOSCOW, March 26 (Reuters) - French food group Danone plans to invest around $700 million in Russia over the next five to seven years, aiming to increase capacity and take advantage of anticipated growth in a core emerging market.

"We are seeing a lot of opportunities for further development as dairy products consumption is significantly lower in Russia than in western Europe," Filip Kegels, president of Danone's Russian business, told reporters on Monday.

The maker of Actimel and Activia yoghurts stepped up Russian investment in 2010 by acquiring a majority stake in Unimilk, and merging its Russian operations with the domestic player.

Over the next five to seven years it will upgrade existing facilities, add new capacity and develop an educational programme for local farmers.

"We have consumption of some 15 kilos a year per inhabitant, and what we can probably reach one day is twice this figure if we just look at the consumption we have in the west of Europe," said Bernard Hours, Danone's co-chief operating officer.

Russia now accounts for 11 percent of Danone's sales and is among the group's biggest markets, on a par with France.

Last year, Danone raised prices in Russia after a severe drought upped the cost of raw milk, sparking a slight decline in Russian sales volume, although revenue in monetary terms grew 4 percent to around 75 billion roubles ($2.56 billion).

Hours told Reuters the price situation was stable and the company was expecting a "good, normal 2012" at its Russian operations.

($1 = 29.2900 Russian roubles) (Reporting by Maria Kiselyova; Editing by John Bowker)

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