The setback of a proud dairy cooperative

What is going on with FrieslandCampina? The once proud dairy cooperative has to deal with one setback after another, has succeeded in alienating its member dairy farmers in record time and excels at communicating half or not at all. Does the cooperative itself still know where it wants to go?

The successes of FrieslandCampina will not last for a long time. The performance premium is increasing year after year, success after success in China and back payments of €0,05 or more are a matter of time, according to the top. The then CEO, Roelof Joosten, is full of bravado and does not hesitate to do something about the yawning milk price gap between FrieslandCampina and the rest after the competition. 

The profits for 2015 and 2016, partly due to one-off windfalls, disguise the first hairline cracks. The Russian boycott, more pressure on sales in China and falling demand from the oil states are starting to bring the numbers down. Halfway through 2016, Piet Boer will step down as chairman and Frans Keurentjes, who is already sitting on the board, will be his successor. The decline has already started.

Race for less milk
Costs are rising, sales at home and abroad are stagnating and the milk supply in the home base of the Netherlands is growing at an alarmingly fast pace to the expected plus of 2020% to 20% (compared to the quota era). In the autumn of 25, dairy cooperative FrieslandCampina will launch a premium for farmers who milk less between October 2016 and March 2016.

Shortly afterwards, the 'standstill' follows: those who produce too much, above a reference period of their choice, are reduced on the milk price. FrieslandCampina has taken into account the entry into force of the phosphate rights system in its capacity planning for 2017, but this has been postponed until January 1, 2018. And now there is a threat of a significant oversupply of milk. It is a harbinger of the measure to come: structural milk supply regulation from 2019.

Organization on the move
In mid-2017, the organizational structure at FrieslandCampina will be completely overhauled. The company will operate in 4 worldwide divisions and the board of directors will be reduced from 6 to 2 people. During the reorganization, dozens of top managers with a great deal of dairy and market knowledge will leave the field. In a statement, Joosten states that the reorganization was not started because things are going badly, but that the roof is being repaired while the sun is still shining. A few weeks later he has to clear the field himself.

When presenting the annual figures for 2017, FrieslandCampina noted a decrease in profit of almost 40% and a supplementary payment of just over €0,01. Member dairy farmers have not seen such historically meager figures in 10 years. To make matters worse, FrieslandCampina comes up with a plan 1 month later to curb the milk supply at the member dairy farms from 2019; also known as the factory quota. The dairy farmers don't understand anymore: what is their dairy cooperative doing?

Farmers are fed up
It is the straw that makes the bucket overflow for a large number of dairy farmers. They don't like it anyway that FrieslandCampina thinks they are prescribing the law on their own property with all kinds of rules about how they should run their business. And now also (in addition to phosphate rights) set a factory quota? "Look at it", say more than 200 dairy farmers. 

Statements from directors and board members and conversations with insiders reveal a range of causes, such as that the company has risked too long on the good results in China. There are also various setbacks: the expensive purchase of cheese trader Zijerveld is one of them. "The work organization has become too slow and too expensive and the decision-making is not decisive enough," the new CEO Hein Schumacher noted in an interview with the Financieele Dagblad. 

Burden instead of lust
In the first half of 2018, FrieslandCampina will also publish disappointing figures. Turnover is shrinking and net profit is falling. At least as big a problem is the lost confidence of farmers. It pains them that FrieslandCampina sees milk as a burden, instead of a pleasure. They are constantly bombarded with new closures, departing dolls and new plans that are brought out so vaguely that no one knows exactly what is going to happen. The communication around the '10-cent scheme' and 'Top-Zuivellijn' are 2 concrete examples of this. 

Insiders conclude that with the reorganization hundreds of years of dairy knowledge and feeling have rolled out of the cooperative. It will be replaced by clever minds and good calculators, who mainly look at cold numbers and less at how you approach a market or how farmers are put together. There is also the question of whether a CFO can be a good CEO. They are 2 completely different disciplines: from purely financially keeping an eye on things to running the complete tent.

In short: the doubts about FrieslandCampina's state have only increased in recent months. The only thing to keep in mind is that the cooperative still pays one of the highest milk prices. This is mainly due to the guaranteed price system. How tenable this system is will become apparent in 2019 during the 3-yearly evaluation of the milk money regulations and reservation policy. 

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