The Company maintains an active risk management policy aimed at protecting its assets as well as the assets of its shareholders, and respecting the interests of employees, consumers and the environment.

Since 2002, the Company has implemented a global risk identification approach (with a specific initiative called “Vestalis”) that maps major operational risks and allows the classification of problems in terms of the risks’ frequency of occurrence and their financial impact on the Company. Vestalis has been deployed in all of the companies in the Fresh Dairy Products and Waters business lines. In 2008, its deployment was extended to the principal companies in the Medical Nutrition business line and will continue in 2009 and expanded to include the companies in the Baby Nutrition business line. As of December 31, 2008, Vestalis was deployed in 72 of the Company’s operating subsidiaries, which represent approximately 79% of the Company’s consolidated net sales based on the Company’s new scope of consolidation.

This chart allows the identification of risks and weaknesses of activities and processes of the subsidiaries within the scope, to group or prioritize them by country or business line and to define preventive and corrective actions, which may be local or global, as appropriate.

The most significant risks are reviewed once a year by the management teams of the business lines and geographical areas during specific meetings. Meetings organized by job function or work process can also take place.

Danone’s Management and the Audit Committee regularly perform a general review of the Company’s risks. In addition, the DERC committee (Danone Risk Enterprise Committee) was created in 2008.

The risks that are inherent to the Company’s business activities, the legal risks, the industrial risks, the risks associated with the environment and the market risks are presented below per thematic category.

RISKS ASSOCIATED WITH THE VOLATILITY OF PRICES AND A POSSIBLE SHORTAGE IN RAW MATERIALS

The Company’s results may be negatively affected by the availability and price of raw materials, in particular materials needed to produce the Company’s food and beverage products (mainly milk and fruits), and materials needed to package or transport its products (PET, PVC plastics, light cardboard for boxes, and petrol derivatives). Variations in supply and demand at the global or regional levels, weather conditions and government controls could substantially impact the price of the raw materials concerned. The increase in their prices may not be passed on, whether in full or in part, on the sales price of the Company’s products and could have a significant adverse effect on the Company’s business activities and its results.

RISKS ASSOCIATED WITH THE CONCENTRATION OF PURCHASES OF SOME PRODUCTS AND SERVICES FROM A LIMITED NUMBER OF SUPPLIERS

In connection with its policy of optimizing its purchasing procedures, the Company centralizes the purchase of certain goods (in particular raw materials such as the ferments used in the Fresh Dairy Products business line) and services (in particular sub-contracted services or information technology services) from a limited number of suppliers. If, despite the measures taken in order to safeguard supply, these suppliers are not able to supply the Company with the quantities of materials the Company needs under the conditions set forth, or if the suppliers are not able to provide services in the required time period, this could have a material adverse effect on the Company’s business activities and its results.

RISKS ASSOCIATED WITH CUSTOMER DEFAULTS AND WITH THE CONCENTRATION OF DISTRIBUTION LEADING TO A SMALLER NUMBER OF CUSTOMERS

While the final customers of Danone products are individual consumers, the Company sells its products mainly to major retail and grocery chains. Overall, the distribution market has become increasingly concentrated. In 2008, the Company’s ten largest customers worldwide accounted for approximately 24% of the Company’s consolidated sales – 6 of those customers are French companies and the Company’s largest client, Carrefour, represents approximately 7% of the Company’s consolidated sales. Continuation of the movement to concentrate distribution that would translate into a smaller number of customers could affect the Company’s operating margin or represent a counterparty risk in the event of a default by a major customer.

RISKS ASSOCIATED WITH A POSSIBLE DOMINANT POSITION OF THE COMPANY IN CERTAIN MARKETS

In some of its markets, the Company is the market leader. As a consequence, the Company may be accused of abusing a dominant position in these markets. Such allegations could affect the reputation of the Company, result in legal proceedings and could have a material adverse effect on the Company’s business activities and results.

RISKS ASSOCIATED WITH COMPETITION

The Company conducts its business in highly competitive markets in which large international groups and numerous local players are present. In Western Europe and North America, the markets in which the Company conducts its business tend to be relatively mature and competition for market share is therefore particularly intense. With respect to the Company’s activities in the Rest of the World, a few international food and beverage groups also hold strong positions in some emerging markets and seek to expand such positions or enter new markets. In addition, certain retail and grocery chains have developed their own private brands. If the Company cannot differentiate itself relative to its competitors in terms of the range of products, the quality, and the market position offered, it may no longer be able to effectively compete with the main actors on these markets.

RISKS ASSOCIATED WITH THE COMPANY’S GROWTH STRATEGY

Acquisitions. The Company’s strategy is to become the leader in each of the markets in which it operates. Within the context of continued concentration in the food and beverage industry, this strategy involves the pursuit of external growth opportunities through acquisitions. These acquisitions could have a negative impact on the Company’s business if the Company is unsuccessful in integrating the acquired companies, providing the necessary resources, and/or fails to achieve the synergies and savings it expects from these acquisitions.

Partnerships. The relationships with partners of the Company in certain entities are governed by agreements, contracts, or documents that could allow certain decisions to be made with the agreement of such partners or without the agreement of the Company. Such restrictions could make it difficult for the Company to carry out its strategy. Finally, certain agreements signed with partners may provide the Company with call options, in particular in the event of a change of control of the Company.

RISKS ASSOCIATED WITH THE GEOGRAPHICAL DISTRIBUTION OF THE COMPANY’S BUSINESS ACTIVITIES

The Company’s operations and its employees could be exposed to the risks and uncertainties involved in pursuing commercial and industrial activities in numerous countries which may experience, or may have recently experienced economic, political, or social instability, particularly in Latin America, Asia, Africa and the Middle East. Also, some countries in which the Company is present offer legal environments that are neither very developed nor very protective (in particular with respect to intellectual property rights), maintain controls on the exchange or repatriation of profits and invested capital, impose taxes and other payments and put in place restrictions, sometimes retroactively, on the activities of international groups.

However, the Company’s growing internationalization enables a better geographical distribution of the majority of these risks. In addition, the Company believes that it continues to implement measures to minimize the risks arising from the Company’s international operations. However, there can be no assurance that the results of the Company could not be significantly affected by a downturn in economic, political, and regulatory conditions or by a crisis in some of the countries where the Company is present.

RISKS ASSOCIATED WITH ECONOMIC CONDITIONS OF THE COMPANY’S PRINCIPAL MARKETS

As a major player in food and beverage industry, the Company’s sales are dependant on the overall economic climate of its principal geographic markets. In periods of economic slowdown or transition, the Company could be confronted with a contraction of sales originating from consumers concerned with preserving their purchasing power, and with an evolution towards consumption methods that could be structurally impacted by the economic climate. These events may have adverse effects on the Company’s business activities and its results.

RISKS ASSOCIATED WITH AN UNFAVORABLE EVOLUTION OF BUSINESS ACTIVITY FORECASTS USED IN ASSET DEPRECIATION TESTS

With respect to the allocation of Numico’s acquisition price, a significant amount was allocated to goodwill and to brands with an indefinite term of existence.

Goodwill and brands with an indefinite term of existence are not amortized. They are subject to a depreciation test at least once annually and whenever events or circumstances indicate that a reduction in value might have occurred.

An unfavorable change in business activity forecasts and assumptions used in the projection of cash flow during depreciation tests, in particular with respect to goodwill and to the Numico brands, could result in value losses. These losses could then have significant adverse effects on the Company’s results.

RISKS ASSOCIATED WITH SEASONAL CYCLES AND WEATHER CONDITIONS

Some of the Company’s product markets are affected by seasonal consumption cycles and weather conditions, which may have a negative impact on the Company’s interim and annual results. In particular, beverages experience peak demand during the summer months. As a result, the Company’s sales are generally higher during these months. Conversely, relatively cool summer temperatures, such as those observed in Western Europe in 2007 or 2008, may result in substantially reduced sales of beverage products, especially packaged water, in the impacted geographical area relative to a normal year, and thus may have adverse effects on the Company’s business activities and results.

RISKS ASSOCIATED WITH THE PRODUCTS

The objective is to have control over the risks both within the Company but also originating from suppliers.

The risk of contamination is classified into four categories: microbiological, chemical, physical and allergic and depends on the nature of the products. This risk of contamination exists at each stage of the production cycle: at the time of purchase and delivery of raw materials, the production process, the packaging of products, the stocking and delivery of finished products to distributors and food retailers, and the storage and shelving of finished products at the points of final sale.

A number of the Company’s products, in particular fresh dairy products, must be maintained within certain temperatures to retain their flavor and nutritional value and avoid contamination or deterioration. In domains such as Baby Nutrition and Medical Nutrition, the absence of chemical contaminants of raw materials, contaminations crossed with allergens and maintaining sterility in the packaging process are crucial. In addition, in the Waters activity, there exists a risk of pollution of the natural water sources that supply the necessary resources for this activity.

In the event that certain of the Company’s products have suffered, or are alleged to have suffered contamination or to be harmful to the health, the Company’s activities and results of operations could be adversely affected. In addition, reports or allegations of inadequate product quality control with respect to certain products of other food manufacturers could negatively impact its sales. The Company believes that it has put in place measures to limit the risk of contamination, in particular through the completion of multiple controls of the production lines and regular audits of its sites, partnerships with scientific organizations of international standing and the implementation of zero-tolerance quality management and food safety policies.

The Company’s strategy rests on the development of new products with a strong nutrition / health component. In this context, the Company remains particularly vigilant, beyond the scientific elements that have been clearly identified and the regulatory context, in particular on the origin of ingredients used. In addition, the group is developing more and more complex products made from organic materials, especially probiotics.

The Company also remains vigilant with respect to the follow-up of risks “perceived” by the consumer, of which GMOs (Genetically Modified Organisms) and obesity risks constitute some striking examples. To this end, the Company has developed a network of privileged interlocutors including, in particular, consumer associations, in order to discuss common subjects that preoccupy individuals and to offer elements of clarification in both a formal and informal manner.

Lastly, the Company’s activities are subject to the evolution of the tastes and preferences of consumers. If the Company cannot predict, identify, and interpret the evolutions of the tastes and dietary habits of consumers, its results could be negatively affected.

RISKS ASSOCIATED WITH INFORMATION SYSTEMS

The Company is increasingly dependent upon common information technology application systems for conducting the whole of its business activities. The main risks are related to confidentiality, the integrity of data and the interruption of computer services. Indeed, any failure of these applications or communications networks and any absence in the securitization of data centers or networks may block or slow down production, delay or taint certain decisions and result in financial losses for the Company. In addition, any accidental or intentional loss of data that were to be used by third parties may have adverse effects on the Company’s business activities and its results.

RISK OF AN INTERNAL CONTROL FAILURE

The Company has implemented an internal control system. This system, no matter how appropriate it is, can only provide reasonable assurance and not an absolute guarantee with respect to the achievement of the company’s objectives due to the limits inherent in any control process. Therefore, the Company cannot exclude the risk of an internal control failure.

Similarly, the Company cannot exclude the risk of fraud. However, given the risk profile of our activities and the existence of an exhaustive and far-reaching anti-fraud program, this risk poses a limited threat.

RISKS ASSOCIATED WITH THE CONSEQUENCES OF RESTRUCTURING PLANS

The Company has already undertaken restructuring plans in the past and could continue to do so. Restructuring plans consist of, in particular, plant closing and headcount reductions in order to lower production costs, to improve efficiency of its production processes, to implement synergies and to adapt to the demands of a constantly evolving market. Restructuring could harm the Company’s employee relations and result in labor disputes, including work stoppages, strikes and disruptions, which in turn could have an adverse impact on the Company’s image, business activities and results.

RISKS ASSOCIATED WITH THE COMPANY’S REPUTATION

The Company’s international expansion and strong reputation expose it to attacks of any nature that could affect its reputation via various means of communication. The Company has established crisis management processes that enable it to limit as much as possible the impacts resulting from such attacks.

RISKS ASSOCIATED WITH BRAND NAMES AND INTELLECTUAL PROPERTY

Given the importance of brand recognition to its business, the Company has invested considerable effort in protecting its portfolio of trademarks such as, for example, the Danone brand name, with the product lines known as Activia and Actimel, or the Evian brand name. The Company also uses security measures to protect its patents, licenses and proprietary formulae for its products. However, the Company cannot be certain that the steps it has taken will be sufficient to protect its intellectual property rights adequately or that third parties will respect or misappropriate its proprietary rights. Moreover, some of the countries in which the Company operates offer less protection for intellectual property rights than Europe or North America. If the Company is unable to protect its intellectual proprietary rights against infringement or misappropriation, its results and growth could be negatively affected.

RISKS ASSOCIATED WITH THE EVOLUTION OF REGULATIONS

As a player in the food and beverage industry present in numerous countries, the Company’s activities are subject to extensive regulation enacted by many States and international organizations, including regulation with respect to corporate governance, labor law, the environment, hygiene, quality control or tax laws. The Company’s activities are also subject to all kinds of barriers or sanctions imposed by countries in order to limit international trade.

The activities of the Company are also subject to various changing regulations that are increasingly restrictive. These regulations are in particular concerned with the protection of health and human safety, assertions about the health benefits of products marketed by the Company, the reimbursement of certain products belonging to the Medical Nutrition business, and the recommendations from the WHO (World Health Organization) favoring maternal breastfeeding. Any regulatory change could have a significant impact on the Company’s activities, increase its costs, reduce consumer demand, and could possibly result in litigation.

The safety of the Company’s industrial sites, its employees and people living close to these sites is a key priority for the industrial policy of the Company.

The Company’s main industrial sites have a limited exposure to major natural hazards (floods, earthquakes and hurricanes). These risks are evaluated in advance of each major investment, and the Company’s new industrial installations are designed with all applicable safety standards. However, the Company’s international development makes it necessary for the Company to set up businesses in areas that are occasionally exposed to the risk of natural disasters, in particular earthquakes (Japan, Indonesia, Turkey, Mexico and Algeria).

The Company’s main industrial activities do not intrinsically expose it to particular risks compared to other industries. The management of fire and explosion risk remains a major concern of the Company’s business lines.

In order to reinforce its risk management, the Company has put in place procedures to evaluate the level of safety at its industrial sites. These evaluations are made by independent auditors and enable operational units to define and implement customized prevention and protection policies. These procedures are based on international standards that most often go beyond local standards. Furthermore, they allow an exhaustive inventory of the various potential industrial risks and are also applicable to partnerships with the Company’s most significant suppliers.

In 2008, 89 loss prevention audits of the Company’s industrial sites were conducted by independent entities that assigned a rating ranging from 1 to 5 to each audited industrial site. The average rating for all of these sites amounts to 3.95 in 2008 (against 3.76 in 2007) and marks an improvement in security conditions. In addition, as of December 31, 2008, 31 sites had a rating of 5, enabling them to obtain an HPR certification (Highly Protected Risk).

The Company’s environmental policy aims to respond to the concerns of many different parties in this area, especially consumers who are increasingly focused on the environmental impact of products, while controlling risks.

RISKS RELATED TO REGULATIONS

The Company’s activities are subject to numerous laws and regulations (which mainly relate to water, air, the use of natural resources, noise and waste). They are becoming more and more stringent and are constantly evolving. These activities are, in particular, subject to obtaining authorizations or making prior declarations, pursuant to legislation applicable in Europe concerning installations and classified as for the protection of the environment and pursuant to equivalent regulations in other countries.

Packaging is subject to specific regulations, in particular European Directive 94/62 (amended in 2004), relating to packaging and packaging waste, which integrates a reduction at source, reduction of the toxicity of hazardous substances and recycling and recovery. In addition, the Company’s activities are subject to the European Directive of 2003 establishing an exchange system and quotas for greenhouse gas emissions and the transpositions of the National Allocation Plans for Quotas in the European Union. Four of the Company’s sites in the European Union are subject to quotas in this way, while the other sites are below the minimum eligibility threshold. In the future, if the Company were unable to limit the emissions of these four sites and comply with allocated quotas, it would have to pay a fine and purchase the missing quotas on the market for greenhouse gas quotas.

RISKS RELATED TO CONSUMERS’ ENVIRONMENTAL CHOICE

Consumers’ purchasing preferences are increasingly influenced by environmental concerns (in particular greenhouse gas emissions and the preservation of water resources), and such preferences are at times considered and publicly communicated by NGOs. Distributors also pay an increasing amount of attention to the messages sent to consumers (in particular the labeling of the impact of carbon on products). If the Company is unable to anticipate the evolutions in consumer preferences, in particular through the implementation of measures associated with reduction and communication on environmental consequences, its results could be negatively affected.

Consequently, the Company undertakes continuous efforts to reinforce its corporate commitment and improve the management of its business activities with respect to every step of its products’ life cycle.

In 2008, the Company equipped itself with a tool that measures the Carbon and Water footprint. This tool was made available to all subsidiaries in the Fresh Dairy Products and Waters business lines. It will be deployed progressively in the Baby Nutrition and Medical Nutrition business lines in 2009.

The estimated carbon footprint for the Company’s products throughout the world represents a total impact of 16 million of CO2 (or 0.003% of worldwide emissions).

Due to the nature of its business activities, the direct environmental impact of the Company’s industrial activity is very limited, and represents up to 11 % of the Company’s worldwide emissions. Agricultural products used by the Company represent 52 % of the Company’s worldwide emissions. The remainder of the Company’s emissions, or 37 %, corresponds to packaging and transportation.

Packaging, which represents 18 % of the footprint of its products, is subject to preventive measures on resources (reduction at source and packaging mix conception), to the promotion of recycling and to the reuse of recycled materials. Transportation, which represents 19 % of the footprint of its products, is subject to the optimization of types of transportation used. For the Company, the focus on both of these areas will lead to strengthen all suppliers’ implication in this risk.

OTHER RISKS

The principal potential risks are water pollution (essentially organic and biodegradable pollution), risks related to refrigerating installations (ammonia and other refrigerating liquids), and risks related to the storage of raw materials or products for the cleaning and disinfection of the Company’s plants (acid or basic products), especially when these installations are located in inhabited areas. In the event that the Company’s environmental responsibility is called into question, resulting from a significant accident or case of pollution, its results could be adversely affected.

Within the scope of its business, the Company can be more or less exposed to foreign currency exchange, financing, and liquidity risks, to interest rate risks, share risks, as well as to the counterparty risk. The management policy for these risks and its organization within the Company are described in Chapter 9. The implementation of this policy, as well as the Company’s post-management exposure to these different risks, is described in Chapter 20, Note 16 of the appendix to the consolidated financial statements.

CURRENCY EXCHANGE RISK

Due to its international presence, the Company could be exposed to three types of currency exchange rate fluctuations:

• Within the framework of its operating activities: the Company’s subsidiaries’ sales and operating expenses are mainly expressed in their country’s currency. However, some imports, in particular imports of raw materials and finished products, and exports are expressed in another currency. The total revenues figure and operating margin for subsidiaries affected by this change in currency denomination could therefore be exposed to currency exchange rate fluctuations against subsidiaries’ functional currency. Pursuant to its operating exchange rate risk coverage policy, the Company’s post-coverage residual exposure is not significant over the course of the fiscal year (please refer to Note 16 of the appendix to the consolidated financial statements).
• Within the framework of financing activities: pursuant to its risk centralization policy, the Company is faced with managing financings and multi-currency liquidities. Pursuant to its financial exchange rate risk coverage policy, the Company’s post-coverage residual exposure is not significant (please refer to Note 16 of the appendix to the consolidated financial statements).
• During the process of conversion in Euros of the financial statements of subsidiaries transacting in a foreign currency: the trading operating income can be expressed in currencies other than the Euro. Consequently, the fluctuations of exchange rates of foreign currencies against the Euro could have an impact on the Company’s income statement. These fluctuations also have an influence on the value of the consolidated balance sheet of assets and liabilities expressed in currencies other than the Euro. The Company has implemented a monitoring and coverage policy with respect to some of its subsidiaries’ net financial position.

In addition, pursuant to IAS 39 relative to derivative instruments, currency exchange rate fluctuations can have an impact on the Company’s results and consolidated shareholders’ equity (please refer to Note 16 of the appendix to the consolidated financial statements).

FINANCING RISK AND LIQUIDITY RISK

Within the scope of its operating activities, the Company does not rely on indebtedness in either a recurring or a significant way. Operating cash flow is generally sufficient to self-finance its business operations and internal growth. However, the Company could in the future increase its amount of debt in order to finance external growth transactions. Its goal remains to maintain its amount of debt at a reasonable level in order, in particular, to preserve some flexibility with respect to its financing sources.

Within the framework of the management of its indebtedness, the Company seeks new financing on a regular basis in order to refinance its existing debt. Pursuant to its financing risk management policy, the Company reduces its exposure (i) by seeking diversified financing sources, (ii) by managing a significant portion of its medium term financings (iii) by maintaining financing sources that are available at any moment and (iv) by ensuring that it is not subject to any commitment relative to the compliance with financial covenants.

In countries in which centralized financing is not accessible or where medium term financing is not available, the Company could be exposed to a liquidity crisis, yet relative to limited amounts.

INTEREST RATE RISK

Through the interest rate on its debt, the Company is exposed to interest rate fluctuations that have an impact on its amount of interest expenses.

The Company has implemented a monitoring and management policy for this risk, the purpose of which is to limit the volatility of its financial income.

In addition, pursuant to IAS 39 relative to derivative instruments, interest rate fluctuations can have an impact on the Company’s results and consolidated shareholders’ equity (please refer to Note 16 of the appendix to the consolidated financial statements).

COUNTERPARTY RISK

The Company is exposed to the counterparty risk, in particular the banking counterparty risk, with respect to its financial management.

The goal of the Company’s banking policy is to favor the credit quality of its counterparties’ and, in so doing, to reduce the risks it faces.

SECURITIES-RELATED RISK

Risk related to the Company’s shares

Pursuant to its share repurchase policy, and within the framework of the authorizations granted at the General Shareholders’ Meeting, the Company could choose to repurchase its shares. The fluctuation in the share price of the Company’s treasury shares repurchased in this way does not have any impact on the Company’s results. A decrease in the share price could have a limited impact on the portion of the potential cash amount paid out with respect to the financing of external growth transactions.

Risks related to other share securities

The Company holds equity interests in listed companies, irrespective of whether they are accounted for under the equity method or not consolidated at all. With respect to the listed securities, a significant and/or prolonged fluctuation in the stock market share price could have an adverse effect on the Company’s results.

As of December 31, 2008, the equity assets include listed securities, the market value of which is reflected in the balance sheet (please refer to Note 8 of the appendix to the consolidated financial statements).

With respect to risks other than those related to the market, the Company has a global insurance coverage policy founded on stringent technical evaluations that use the insurance products around the world according to their availability on the local markets and the local regulations in force in each country.

The insurance policy for risk is consistent for all of the subsidiaries over which the Company has direct or indirect operational control.

This policy is as follows:

• Traditional potentially major risks (Property Damage, Business Interruption, Commercial General Liability): such programs are negotiated at Company level for all subsidiaries with renowned international insurers. The coverage is provided in the form of “all risks” on the basis of the largest guarantees existing on the market, together with variable deductibles that are relatively low as compared with those granted to groups of comparable size in order to take into consideration and account for the management of each Business Unit. The guarantee limits are set on the basis of disaster scenarios estimated in accordance with insurance market rules. The coverage policies were renewed as of January 1, 2007 for a set period of three years. The total budget for these programs amounted to approximately € 18 million in 2008;
• Special risks: they are potentially significant, and require centralized management. The liability of the Company’s corporate officers (“mandataires sociaux”), fraudulent acts, as well as various risks (taking products off the market, credit risk, environmental risk) that are covered according to market availability, on the basis of scenarios estimating the impact of these claims. The total budget for this category of coverage amounted to approximately € 3 million in 2008;
• Common lines of cover: these risks, which require local management, include the coverage for fleets of vehicles, guarantees for the transportation of merchandise, work-related accidents (in countries in which these accidents are covered by private insurance), and insurances specific to some countries. These insurance policies are negotiated and managed in accordance with local practices and regulations, within the framework of precise directives provided and controlled by the Company. The budget for premiums amounted to approximately € 10 million in 2008.

The Baby Nutrition and Medical Nutrition business lines were integrated in the various programs described above in 2008

In addition, in order to optimize the insurance cost and maintain a strong level of control over its risks, the Company provides its own insurance solutions on an internal basis via the reinsurance subsidiary Danone Ré, a fully consolidated entity. The self-insurance policy applies to specific risks where the costs can be accurately estimated as the Company is aware of their frequency and financial impact. Such risks relate essentially to (i) coverage for property damage, transportation, business interruption, commercial general liability for the majority of the Company’s companies (these self-insurance programs are limited to accidents under € 7.5 million per accident) and (ii) payments for disabilities, training and death for the French subsidiaries. Moreover, “stop-loss” insurance protects Danone Ré against an increased frequency of accidents and loss. These self-insurance programs are managed by professional insurers and the provisions are determined by independent actuaries.