Danone // 2020 Universal Registration Document

2 Overview of activities, risk factors 2.6 Risk factors DANONE UNIVERSAL REGISTRATION DOCUMENT 2020 29 DESCRIPTION MANAGEMENT MEASURES medium Raw materials price volatility & availability Overall, material costs (rawmaterials, packaging, finished products) represent around 80% of Danone’s cost of goods sold, i.e. around €10 billion on annual basis. Milk and packaging are the largest contributors to material costs, around one-third and one-fourth res- pectively, with plastics representing around 50% of packaging costs. Danone’s raw materials can be broadly divided in two categories: milk products (60%) and other food and ingredients needed to pro- duce food and beverage products including soybean & nuts, fruits & vegetables, sugar & sweeteners, oils & fats, etc. Some of the key drivers of supply and demand imbalances are: • weather conditions and natural disasters; • government control and regulatory changes; • geopolitical events; • shifts in consumer preferences: e.g. increase in milk protein demand in China can lead to price increase of milk powder supply. Variations in supply and demand at global or regional levels expose Danone to potential: • price increase for key raw materials that may not be passed on, either in full or in part, in the sales price of Danone’s products; • reduced availability of key raw materials which could adversely affect Danone’s ability tomeet consumer demand for its products; which could negatively impact the sales, margin and results of Danone. Danone’s supply policy and exposure to principal raw materials risks, including milk, are described in Note 6.7 of the Notes to the consolidated financial statements. To limit volatility, Danone defines for each commodity and entity a hedging strategy depending on the impact on its profit and loss, its position in the market and the need for financial visibility. In the context of high rawmaterials price volatility and in order to limit its impact on Danone’s activity and results, the Company manages this cost inflation through actions described in section 2.4 Other elements related to Danone’s activity and organization .