News FrieslandCampina
'Financing parallels farmers' control'
FrieslandCampina is looking for solutions for the bottlenecks in member financing. This includes linking the capital to the supply of milk and the return of the results of the dairy group via the milk to active members. The cooperative will discuss the options with its members this autumn.
Member financing is important for FrieslandCampina's equity build-up, so that the dairy group can continue to invest and grow. FrieslandCampina is now financially healthy, emphasizes Frans Keurentjes, chairman of the cooperative. Shareholders' equity amounts to 36 to 37 percent of total assets on the balance sheet. In the long run, however, an imbalance threatens to arise in member financing.
This is mainly due to member bonds. Every year, 55% of FrieslandCampina's profit is added directly to shareholders' equity, which is a dead end. Furthermore, 35% in cash goes to the member dairy farmers and 10% is paid out in the form of member bonds. For active members, these are fixed, non-negotiable bonds. If a dairy farmer quits, these bonds are released and are tradable at face value. Members and former members can trade these securities 6 times a year on an internal exchange.
Imbalance in supply and demand
The system was introduced when Friesland Foods and Campina merged more than 10 years ago. "But we are now seeing an imbalance in the supply and purchase of bonds by members. If that is not in balance, this raises questions about the sustainability of the system," says Frans Keurentjes, chairman of the FrieslandCampina cooperative. The current system is voluntary and not linked to the size of the company, for example, he explains. Members who increase their dairy herd or take over another dairy farm are not obliged to purchase additional member bonds in proportion to their production. "Not every member therefore finances proportionally in FrieslandCampina."
A consequence of the current system is also that relatively many bonds are outstanding with former members and older members. The active members buy up about €35 to €40 million in member bonds annually, but this is not enough to buy up all the extra supply from the members. During this period, a dairy farmer also has to invest a lot in his own company, which means that there is less room to put money into a cooperative.
Build robust equity capital
In addition, according to financiers, the current member financing cannot be qualified as pure equity. "As a result, FrieslandCampina cannot write off this part of its shareholders' equity," explains Keurentjes. "While our goal is to build a robust equity capital."
FrieslandCampina therefore wants to discuss with the members how the financial scope of the company can be increased and how member financing can be put on a modern list. The cooperative will not immediately put forward a concrete proposal, because Keurentjes' experience shows that a discussion is then "nipped in the bud." Thoughts have been formulated on which members can express themselves.
Link capital and milk delivery
The starting point is, among other things, that there must be a clear link between capital and the supply of milk, that it must be possible to build up additional capital in FrieslandCampina and that the company's results must flow back to active members via the milk. Other schools of thought are that the transfer of dairy farms and the tradability of member financing as a whole should remain possible and that the cooperative structure with control over the company should be preserved.
There are 2 conditions for this from the dairy group FrieslandCampina. The company must be able to execute the strategy with solid ratios and a solid credit profile. The system must also contribute to strengthening the pure equity capital of the company.
Keurentjes is curious how the discussion with the members, which will largely run digitally due to the corona crisis, will turn out. He realizes that many dairy farms do not have it easy financially. "The basic principle is that the cooperative remains in the hands of farmers. If we want to continue to grow, this also imposes requirements on financing. And financing is parallel to farmers' control."
Eric the Thrush
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