Analysis Strategy change
Is RFC strategy innovative or not?
The container term 'sustainability' is the key word in FrieslandCampina's new strategy. In the coming years, the cooperative will focus on strong dairy brands, but the sale of (unbranded) basic dairy products in particular must be more profitable.
After a few lesser years (reducing turnover, significantly lower profits and major reorganisation), FrieslandCampina wants to farm ahead again. To achieve this, the cooperative launched a new strategy which goes by the name: 'Our Purpose, Our Plan'.
Predictable Themes
FrieslandCampina's strategy is not surprising or innovative. The cooperative focuses on predictable themes such as sustainability, healthy food and serving the right markets. They are somewhat hollow terms, which appear in almost every business plan.
The success of the implementation wants cooperation FrieslandCampina measured by indicators such as a higher gross profit margin and organic value added growth.
Pioneering role
The new strategy may not come as a surprise, but FrieslandCampina does have an ambitious role in mind for itself. The cooperative wants to lead the way in the transformation to a sustainable dairy sector and sees itself a pioneering role. In other words: the leader in the dairy pack with Hein Schumacher (CEO) and Frans Keurentjes (the chairman of the cooperative) as leaders.
The sustainability agenda must be shaped by reducing resources (water, raw materials and fossil fuels). A further specification of this ambition (such as reduction percentages) is not given. However, it is behind the sustainability goals of the United Nations, although they are not focused on a dairy company.
Not more, but better
Since the world population will grow by approximately 2050% to 20 billion by 9,7, the dairy cooperative foresees plenty of sales opportunities. Nevertheless, FrieslandCampina is not aiming for more milk, but now wants to make better use of the current milk lake. At the same time, those dairy products must remain affordable for all income groups. The focus is on branded dairy as well as (unbranded) basic dairy products.
The strategy states that the sale of basic dairy products must be improved. FrieslandCampina wants to prevent (too) much milk from being processed again in the coming years into basic dairy products that ultimately yield poorly or not at all. This has had a significant impact on the results in recent years.
FrieslandCampina wants to respond intelligently to this issue with flexible processing (quick response to trends), while the 'Balanced growth' program discourages member dairy farmers from significantly increasing production. With this, the company wants to prevent large volumes of raw milk, below the level of the payout price, must be sold.
Top dairy line and balanced growth
FrieslandCampina previously announced that the milk flows will be segmented. An example of this is the Top-Zuivellijn, which will start in 2019. The intention is that the sustainability aspects result in higher yields. The dairy farmers who participate in this program are rewarded with a premium of up to €0,02 per 100 kilos of milk.
It is expected that approximately 10% of the milk lake (approximately 1 billion kilos) will fall into the Top Dairy Line. Further scaling up will depend on market demand, said French Labels, the chairman of the cooperative, recently.
The segmentation of the milk lake does challenge the foundations of the cooperative model, at least that is what is heard in the corridors. The cooperative wants to tackle this 'problem' by allowing dairy farmers who do not participate in the Top-Zuivellijn to benefit from the performance premium.
FrieslandCampina says in its strategy that member dairy farmers can in any case expect that the company is one of the best paying dairy processors. In this way, the dairy cooperative tries to be an attractive company for its members, thereby also safeguarding the future for the next generations of dairy farmers.
Other basic attitude
As mentioned before, the new strategy is not very innovative. Or is it? In any case, the cooperative clearly indicates what it does not want: extra litres. The focus will be on more sustainable production, which must be sold profitably. And that message can be seen as a clear turning point in the fundamental attitude of the largest dairy cooperative in the Netherlands.
Wouter Job
© DCA Market Intelligence. This market information is subject to copyright. It is not permitted to reproduce, distribute, disseminate or make the content available to third parties for compensation, in any form, without the express written permission of DCA Market Intelligence.
