Analysis Half-year figures
Less is more at ForFarmers and FrieslandCampina
FrieslandCampina and ForFarmers are 2 completely different companies, but they have one thing in common. Less volume leads to more profit. Or vice versa.
Both agricultural superpowers have recently published their half-year figures. This shows that more is not always better. FrieslandCampina, for example, achieved more profit with less milk. The increasing feed sales at ForFarmers, on the other hand, are not leading to better figures. Far from that.
Less milk, more profit
FrieslandCampina has been struggling for years with a relatively large volume of milk that is loss-making. In 2018, the dairy cooperative collected 10,3 billion kilos of milk, of which approximately 3 to 4 billion kilos were reported to be loss-making. However, the milk supply has fallen sharply this year and profitability is immediately increasing again.
The member dairy farmers produced approximately 5% less milk in the first half of this year, partly due to the outflow of a number of colleagues to A-ware. In this period, the operating result rose by a sloppy 20% to €210 million. At the bottom of the line, approximately €121 million in profit was made, an increase of 11%. FrieslandCampina attributes the increase in profit to a large extent to the smaller surpluses, which did not have to be processed into loss-making bulk butter and milk powder.
More feed, less profit
At ForFarmers, the situation is exactly the opposite. The listed animal feed group from Lochem saw its feed sales rise in the first half of the year, but its profits fell sharply. In the 5 countries in which it is active, total feed sales are up 5% to 5,1 million tons. Operating profit, however, fell by more than 30% to €35,8 million, of which a meager €11,9 million remained at the bottom of the line. It looks like the group will be heading for a historically low profit this year.
The nuance
The question is to what extent the profit figures are a volume issue, because 'less is more' is of course only an observation at first glance. Although both companies are agricultural strongholds, they are completely different from each other and therefore cannot be compared 1 on 1.
The lower profit at ForFarmers, for example, is also due to a failing purchasing policy. The higher feed sales are the result of 4 acquisitions that ForFarmers made in the second half of 2018. It takes time (and money) to integrate these companies into the group. FrieslandCampina also owes the higher profit to the sale of its branded dairy products, which is a spearhead in the new strategy launched last year. Cheese, in particular, has performed well in recent months.
A lesson
Nevertheless, the figures at both companies do show that more is not always better. Also over a longer period of time. ForFarmers saw its feed sales increase by approximately 2012% (+2018 million tons) due to a series of acquisitions between 50 and 3,4. However, profitability has barely increased in the meantime.
FrieslandCampina saw profits decline in 2017 and 2018, after milk production had increased considerably (due to the abolition of the milk quota). In 2017, for example, the supply rose to a record 11,4 billion kilos. Profits plummeted in the same year by €135 million to €227 million. Thanks to an incidental income (sale Riedel), the figures were polished up a bit.
Stripe through new factories
Although the results are not just a volume issue, the figures speak for themselves. Not only on the farm, but also agribusiness seems to be reaching the limits of scaling up. It will therefore be interesting to see what strategy both companies will adopt in the coming years.
At FrieslandCampina it is now clear that they focus on quality instead of quantity. In other words: the focus will be (more) on branded dairy instead of bulk. The much-discussed PlanetProof milk flow is an example of this. ForFarmers will come up with a new strategy next year. The question is whether they will then continue to focus on unbridled growth in the markets in which they are now active, or whether they will seek their luck more in Eastern Europe or perhaps even beyond.
Coincidentally, both FrieslandCampina and ForFarmers canceled the construction of a new factory. FrieslandCampina in the Netherlands and ForFarmers in Germany. This probably says enough.
Wouter Job
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