'Digital dairy trade is only a matter of time'

The world is digitizing at a rapid pace, but what about the dairy trade? Various dairy commodities can be traded online via the 'DAO.EU' platform. Richard Klink, sales and marketing manager at DAO.EU, is convinced that the dairy trade will become increasingly digital in the future. "That also benefits the dairy farmer."

What is DAO.EU, and what is the advantage of your platform?
"DAO.EU is a online marketplace, where homogeneous dairy products can be traded 24/7. The participants on the platform include dairy producers, trading houses and the processing industry. The traditional dairy trade between these parties is currently still mostly done by telephone, but that is not necessary on our platform. The advantage of this is that trade is organized more efficiently. You may be able to request 1 fixed bids and/or quotes over the phone in 5 hour, but through the marketplace you can reach hundreds of potential buyers and sellers anonymously within 1 minute."

"The 130, mostly European, companies that are registered with us, have a minimum credit limit of €50.000. You can select or deselect who your potential counterparty is in advance. This provides buyers and sellers with certainty to get down to business. Bids, quotations and transactions made are anonymously accessible to every participant. This makes trading more dynamic and also provides market information. We want to be the best source, for the best price."

You have been active for over 1 year now. Is the platform successful?
"The platform is going well. In 2018, approximately 15.000 tons of product was traded via this platform. You can think of skimmed milk powder (feed), butter and cheese. Our goal is that approximately 50.000 tons will be traded via the platform next year. That is ambitious, but also realistic. We see that dairies want to deploy and/or retrain their staff more efficiently to market value-added products."

"Bulk products are only distinctive on price. In order to market these products properly and efficiently, a tool (such as our platform) can help to quickly respond to the changed market conditions while keeping 'overhead costs' low at the same time. You can see this awareness are currently being developed at several large dairy players. For smaller players, DAO.EU can be a tool to sit down with the big players on an equal footing."

What's holding back potential users?
"Working online is a different way of working, so: unknown sometimes makes unloved. Companies that are already highly digitized embrace our platform faster than companies that are not yet. Just like in other sectors, digitization is only a matter of time. commodities, for example grains or sugar, are increasingly traded digitally." 

"What also sometimes prevents it from doing business digitally is that not all dairy products are traded under the standardized conditions. We work on the basis of generic product specifications and MPC trading conditions, but that is not always common practice in the dairy trade. That is why we start. this year also offering tenders and sales, for companies that prefer to set their own terms and conditions for the transaction.”

"Another factor hindering the rapid adoption of this platform is the cold-hearted fear that increasing price transparency is synonymous with decreasing benefits. However, this assumption no longer reflects current and future market conditions. The milk price and derived dairy products are determined by a number of variables (weather, currency, import duties and politics). Due to data transparency, this information is available to more and more players at the same time. In our view, it is the skill to be able to interpret this data, and based on that In short: the trick is to take a good (long/short) position at the right time. We believe that DAO.EU, which provides more liquidity in the market, can help with that."

A dairy farmer is a little further away from the trade. Can they also (indirectly) benefit from your platform?
"On the basis of the dairy products traded via this platform, the payout price to the dairy farmers is partly determined. Another factor is the long price agreements between the dairy processors and retailers. We expect that the prices of the dairy commodities will increasingly move in the direction and level of the milk prices will determine. Of course there will still be a delaying factor between those prices. Our platform is transparent and that offers dairy farmers better insight into the dairy prices made."

"In addition, dairy farmers will probably increasingly hedge their price risks on the futures market (EEX) for raw milk. However, the EEX can only function properly if there is also a healthy and transparent underlying physical market. Our platform can provide insight to help as a dairy farmer position."

What do the latest trends on DAO.EU say about the direction of the dairy market?
"We are currently seeing the prices of skimmed milk powder (feed) fall and foil cheese is also under some pressure. On the other hand, we see the butter prices rising again. In the coming months, a lot will probably depend on the weather conditions, and the associated milk supply."

Wouter Job

Wouter Baan is Head of Meat & Dairy at BoerenbusinessAt DCA Market Intelligence, he focuses on dairy, pork, and meat markets. He also monitors (business) developments within agribusiness and interviews CEOs and policymakers.

w.baan@boerenbusiness. Nl

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