FrieslandCampina wants to cut back the guaranteed price

FrieslandCampina plans to cut back the guaranteed price. The proposal to the member dairy farmers is to remove the supplements (for vlog, sustainability and grazing) paid out by the reference companies from the guaranteed price from 2020 onwards.

In practice, this means that the guaranteed price is lower and the performance premium is higher. A calculation example based on the situation in 2018: For an average dairy farm, with an annual supply of 850.000 kilos, this means that the guaranteed price is €0,89 per 100 kilos lower. 

This amount benefits the company's profit, of which 35% is subsequently returned in the form of the performance premium and 10% through the member bonds. The remaining 55% goes to shareholders' equity. At the bottom of the line, this means that a dairy farmer receives €0,50 per 100 kilos less. 

Avoid double surcharges
CEO Hein Schumacher and Frans Keurentjes, the chairman of the cooperative, emphasize that the adjustment is not being made in order to 'withhold milk money' in a soured way. The number of supplements at reference farms has skyrocketed in recent years, as a result of which some member dairy farmers now sometimes receive double supplements. This is because FrieslandCampina pays the premiums for vlog and grazing on top of the guaranteed price, while those of the reference companies are already included in the base price. 

"However, in the long term, the member dairy farmers benefit from a robust company. That is why these adjustments have been proposed to the members," said the CEO. Schumacher and Keurentjes acknowledge that the proposal has led to vigorous discussions in the Members' Council, but that there is nevertheless support and understanding for it.  

Vreugdenhil replaces DOC
There are also some 'practical' adjustments. For example, in the basket of reference companies, the milk price of DOC Kaas is replaced by that of milk powder producer Vreugdenhil. The proposal is to include this at 11,5%. FrieslandCampina believes that the weighting of DOC Kaas has become too large due to the merger with the German DMK.

FrieslandCampina also wants to update the standard levels. Since the merger in 2008, the calculations are based on 3,47% protein, 4,41% fat and 4,51% lactose. However, the milk has become more protein-rich and less fat over the years, so that the difference between the published guaranteed price and the actual payout prices has become too large. It is therefore proposed to adjust the standard levels to the actual levels for 2019.

Invest book profit directly
A proposal that does hit a dairy farmer directly in the wallet is one that relates to book profits. For example, when an industry is divested, the benefits now go to profit sharing. The proposal is that from 2020 FrieslandCampina will be given the option to invest a book profit of at least €100 million directly in business opportunities and thus exclude it from profit sharing. 

Meadow grazing guarantee
Another proposal is to include the Cow Monitor in the requirements of Foqus Planet. The financial incentive of this dairy group's sustainability program must also be increased. From 2020, grazing dairy farmers will be asked to make an extra administrative effort. The proposal is that, in addition to the registration of grazing days, they will also register the grazing times. In this way, the dairy company wants to better safeguard outdoor grazing, as requested by the Weidegang Foundation, according to its own account.

Wouter Job

Wouter Baan is editor-in-chief of Boerenbusiness. He also focuses on dairy, pig and meat markets. He also follows (business) developments within agribusiness and interviews CEOs and policymakers.

w.baan@boerenbusiness. Nl

© 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.