Background FrieslandCampina
'I would think twice as a switcher'
Zuivelcoöperatie FrieslandCampina again saw many member dairy farmers leave in 2018. In addition, the company made less profit, so that the performance premium turns out rather meager. Nevertheless, the top of the company looks positively to the future.
De FrieslandCampina's annual figures are by no means rosy, as profits fell 10% to €203 million. As a result, the performance premium halved to a meager €0,46 per 100 kilos of milk. The company attributes the lower profit, among other things, to the relatively high guaranteed price; on average it came to €36,05 per 100 kilos.
Year of the transition
Hein Schumacher, the CEO of FrieslandCampina, describes 2018 as a year of transition; a fresh start after a few difficult years. Last year, the dairy cooperative launched a new strategy, but the first fruits are not yet reaped. "The transformation within FrieslandCampina will take at least 24 months", the CEO emphasized during the presentation of the annual figures. "Yet the profit has to be increased in 2019."
In Germany, the group has made a clean sweep and almost 90% of the organization has been renewed; the results are quite disappointing. The head office has since been moved to Düsseldorf and 1 German dairy has been closed. These interventions should eventually turn the tide, but Schumacher sees Germany as a difficult market. In general, the CEO desires more and better product innovations.
It is not obvious that sales to China will boost profitability. The cooperative is large in the Chinese market in baby milk powders, but sales are under pressure. "Competition has increased, with around 2018% fewer babies being born in 12. This will depress sales in the coming years." By investing extra in marketing, the company wants to maintain its leading position. "That's what we're fighting for," Schumacher said.
Less milk, better performance?
The company is looking for extra profit with the sale of branded dairy. That is why a number of acquisitions were made in 2018 that should give the cooperative more clout. "The upward trend has resumed from the second half of 2018," emphasizes the company's top management. 'Coincidentally' the milk supply clearly shows a decrease from that period. Frans Keurentjes, chairman of the cooperative, says there is no connection between the declining milk supply and the turnaround in performance. This does not alter the fact that there seems to be a correlation.
FrieslandCampina collected 10,3 billion kilos last year. According to Keurentjes, 3 to 4 billion kilos of this are still loss-making. "However, you have to see the ratio in context to the high guaranteed price that we pay out. That does not alter the fact that our profitability has to increase. It is an illusion, however, that the loss-making volume will be reduced to 0 in the future," says Keurentjes.
Henry Schumacher
High member turnover
Just like in 2017, FrieslandCampina again saw many members leave in 2018. Of the 603 departed dairy farmers 340 went to another dairy group. The rest is a stopper. Schumacher does not want to say what an acceptable annual turnover of members is. He cannot estimate whether the outflow of grumbling members has now stopped. "I can't get into the minds of the dairy farmers what they are going to do." The CEO emphasizes that FrieslandCampina (as the largest dairy cooperative) really has something to offer its members. "As a dairy farmer I would think twice before switching to another dairy."
The loss of members can hardly be attributed to the milk price of FrieslandCampina. "We pay the highest milk price of all cooperatives", claims CFO Jaska de Bakker. She says that this is also the ambition for the coming years. The stayers will probably have to warm up to sustainability. Schumacher: "We want to take a leading position in terms of sustainability and we also reward our dairy farmers extra for this."
give the time
The aftertaste of the press conference is that FrieslandCampina is asking for at least another year for recovery. The coming years will show whether the pride of the Dutch dairy sector can actually increase profitability and stop the turnover of members. If the new strategy is successful, FrieslandCampina will show a strong recovery. If not, there are no more excuses.
Wouter Job
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