Interview Frank van Stipdonk
'Dairy market for everyone in unknown territory'
No one active in the dairy market, and essentially the entire agricultural commodities market, has experienced what is happening there. Even the old hands have no experience with it. Almost all known benchmarks suddenly seem relative. Frank van Stipdonk, CEO of the dairy trade Interfood and chairman of Eucolait, the European umbrella organization for dairy traders, immediately answers the question about a vision of the current market: "I also have more questions than answers."
"Where is this going?" Stipdonk wonders. "I have never experienced this before. I understand that many prices are going up. In 2009 and also and 2013 and 2014 there were price peaks earlier, but the current price increases are more basic than then. That much is clear. Milk production worldwide is quite low. over the past year and the situation has still not changed significantly, while demand is increasing due to a growing world population.Partly because of this there are hardly any or no stocks.Producing more quickly is difficult, because energy and feed are very expensive That has become a problem for both dairy farmers and the links in the chain behind them. Farmers in many countries are also bound by all kinds of restrictions, which means that more production is not easy."
And then all of a sudden you have another war...
"Yes, that war is loosening everything. To stay with the market: compared to last year, prices have now doubled. But will that remain the case or will products become even more expensive? And what does the consumer do in such a situation? "The industry will continue to produce here. Demand is still growing at the moment, mainly thanks to exports and especially cheese. What happens next and in the slightly longer term? We can't read tomorrow's newspaper yet."
Dairy farmers now also receive quite a bit more milk money due to the higher dairy prices, but you also hear that it may still be barely enough to make up for the increased costs for them.
"We are in the crazy situation that prices hurt on both sides: the farmer and the consumer. One has to improve the margin, the other has budget problems. There may still be something in the pipeline for the farmer. The spot prices for raw milk are still much higher than what the cooperatives pay out, partly due to all kinds of long-term contracts in the industry."
The dairy trade is in the middle of the chain and must also keep itself afloat in an exciting time like this. You can't sell what you don't have, you shouldn't take wrong price positions. It takes great care to limit your risks in such a volatile market. Where are the biggest possible bottlenecks?
"You also have to keep a very close eye on your cash flow. Because of those high prices you have to finance twice what was common before, and that is not always easy. Financiers want to keep a close eye on the coverage percentage. How far can you go then?Many companies will therefore have to choose more carefully what they do and don't do in terms of trading. Due to the increased risks, I also see fewer long-term payments (90 to 120 days) being made. Companies are getting closer to their money and (partly because of this) more companies will also get into trouble."
That concerns the business environment. What can be expected from politics? Is another action by the European Commission also envisaged?
"It's hard to say. The Commission has always been different and now has to think very differently. They were always careful that prices did not fall through the bottom and that they managed surpluses, but now it seems completely different for a longer period of time Do they need to develop new policies for that?"
"If you want to keep food affordable for European consumers, then you may need a completely different approach than the one that is currently being used. Who knows, maybe there should be more incentives to continue producing and, for example, adjusted intervention prices will also be necessary. depends on how long and sustainable this period of higher prices and shortages lasts."
Klaas van der Horst
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