Danone has been hit by increased milk costs and food scares with its first half earnings for 2014 down by 20%.

It said today that its first half of the year was hampered by high bases for year-on-year comparisons, being linked to Fonterra’s false safety alert, record inflation in milk prices, and weak currency trends in emerging markets.

However, it said that sales were up 2.2% on a like-for-like basis, but trading operating margin was down 11.2%.

“The first half of the year was particularly eventful…First, we responded to record milk prices with key initiatives in various fields…all designed to rebuild margins that had come under serious pressure in the first quarter. And these efforts paid off. We also continued to roll out products with high added-value in all our regional markets and continued to build our strategic business platforms,” said Chairman Franck Riboud.

“We operate in a global environment that is still subject to risks and upheavals, and it presents us with challenges every day. But it holds an equal number of hidden opportunities. This is the mindset that has guided us so far, and it will continue to inspire us. Our agenda for the second half of the year is exactly the same: we will stay focused on reaching our 2014 targets and continue to build strong, profitable, sustainable growth.”

However, it is predicting that consumer demand will remain similar to 2013, with sluggish trends in Europe, significant carry-over of milk price inflation and persistently high exchange-rate volatility in emerging markets, resulting in higher inflation in those countries.

In response, Danone says it will continue to deploy action plans already under way in Europe — updating its product portfolio and sharpening its competitive edge.