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FrieslandCampina exposes pain in the phosphate system
FrieslandCampina recently introduced the growth agreement, which immediately exposes the weak spot in the phosphate trade. For example, dairy farmers can get a higher reference by converting the purchased rights into milk (option 5). In practice, however, the transfer of rights does not proceed so smoothly and dairy farmers are thus duped.
From 1 January 2018, phosphate rights can officially be traded. Nevertheless, the Netherlands Enterprise Agency (RVO.nl) only in april started to continue the transactions, as a result of the uncertainty surrounding the young stock. Are rights or not required to keep young stock for beef farming? then there a decision was taken over, the first transactions could actually be completed.
Still reason for haste
Due to the fact that dairy farmers have 1 full year to put their rights in order, there was no reason to rush. However, FrieslandCampina changed that. The processor disclosed that it is working on a growth appointment† through this agreement, unlimited growth is curbed without consequences.
A dairy farmer is still allowed to expand his milk production, and that milk is also collected. However, if the milk pool of the entire cooperative exceeds the reference, the individual quota will apply. The result of this is that a guaranteed price of less €10 per 100 kilos will be paid for the extra liters of milk.
30
procent
This is an intervention with major consequences, because FrieslandCampina's average milk price in the period from 2015 to April 2018 is €32,19 per 100 kilos (with a fat content of 4,41% and 3,47% protein and an annual supply of 600.000 kilos of milk). This does not include surcharges. The minus of €10 in this way results in a discount of 30%. It underlines the need to achieve the highest possible reference.
Option 5 for small group
Various periods have been designated that can serve as references. Option 5 is that the purchased rights are converted into milk, but the rights must then be obtained before 16 April 16:00 or registered with RVO.nl. A tour of the market shows that for the most part the period April 17, 2016 to April 16, 2017 gives the highest reference. This is because in many places rights still have to be bought to maintain that volume. Only for the companies that had more rights than necessary on April 16, option 5 is the best choice.
Those companies appear to be there and then problems arise at RVO.nl. The dairy farmers report that rights have been bought and paid (which can be proven), but that the rights have not yet been transferred. The causes appear to be very diverse; for example, business transfers have not yet gone through. There are companies that are only very late a decision received, which has delayed the matter. In some cases there is also no good decision sent.
Another problem (which occurs occasionally) is that beef farmers have sold the rights, but do not wish to transfer. This is due to a lack of clarity about the proposed exemption, which is not expected to be fleshed out until June or July. Following on from this, in some cases the rights sold by livestock farmers who keep young stock for dairy farming are not transferred either.
Another factor is that the rights purchased before 16:16 on April 00 still have to be transferred. That takes time (about 4 weeks). There are also questions about this, because what will FrieslandCampina do with it. In addition, RVO.nl has only been processing the transactions for 1 month. As a result, current trades are pushed through faster than those of the first hour. For example, there are transfers from the beginning of January that are still not continued .
Yet another situation (which RVO.nl is not involved in) is that the buyer has a purchase agreement and the rights have been paid, but the intermediary does not receive the rights from the seller. Often because the selling party wants more money and the case has therefore ended up in court. As a result, the rights have not yet been registered with RVO.nl.
Fear of rights without milk
Meanwhile, dairy farmers fear that they have bought rights that cannot yield milk with a 100% price guarantee. Dairy farmers are known to be affected by this at various brokers and traders in phosphate. Only 1 player says he has had a promise from FrieslandCampina that a purchase agreement and payment will soon be handled smoothly. FrieslandCampina could not yet confirm whether this is correct. It is true that when an obligation has been entered into, they must legally take it along.
Harm Wiegersma of the Dutch Dairy Farmers' Union (NMV) recognizes the problems at RVO.nl. "There are even rights that were sold last year that have not yet been transferred. They are of good will, but a lot is now on their plate." At the same time, he is hopeful that 'soup at FrieslandCampina will be eaten less hot' than it seems now.
Unlucky Confluence
The current situation is the sum of various developments. For example, the government is still working on putting the implementation of the phosphate rights system in order and there are still various gaps. A few examples of this are: the bottleneck scheme and the exemption for young stock from beef farmers, but the issuing of the decisions has not yet been completed.
However, due to FrieslandCampina's plans, there is suddenly a need to resolve current issues as quickly as possible, because this could mean loss of income for entrepreneurs in 2019.
Also view the trend in milk price and follow the developments in the price of the phosphate rights.
Herman van den Pol
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