FrieslandCampina is sending a clear signal

FrieslandCampina performed well in the first half of this year. Even better than expected. The net profit then significantly increased and rose to €139 million, helped by old stocks that had suddenly become much more valuable. The champagne then remained in the cupboard. In fact, the management was already building at that time a disclaimer in. Despite the significant increase in profit, they did not dare to make a pro forma additional payment of €0,69 per 100 kilos. In July it was already clear that sentiment in the dairy market was changing, driven by high inflation. Now, about five months later, it appears that it was a wise decision to leave the member dividend in an Amersfoort safe for a while.

Not a bolt from the blue
De disguised profit warning from FrieslandCampina is striking, but not a bolt from the blue. You don't have to be an economist to understand that the high payment prices are a problem, and not only at the largest dairy cooperative in our country. The raw material value of milk has now fallen to approximately €50 per 100 kilos and the dairy market is still not on solid ground as of mid-December.

However, the guaranteed price with premiums is still well over sixties, while spot milk prices have already fallen through the €50 mark. Rabobank recently confirmed that the persistently high payout prices are artificial. According to the bank, the fact that milk processors are looking for new members or suppliers is one reason why milk prices have still not been reduced.

Even if FrieslandCampina wanted to lower the milk price, there are few options to do so. After all, the reference companies rigidly adhere to the high payout prices. Only the Belgian Milcobel recently reduced the milk price, but this has limited weight in the basket of companies. With the guaranteed price system, FrieslandCampina has little freedom to tinker with the milk price on its own. The members in turn receive a competitive milk price. And that is ultimately the goal. Especially now that the gate for new members is emphatically open again. 

Strategy under pressure
The first quarter is just around the corner. In terms of dairy consumption, these are generally weak months. Now probably especially because of the purchasing power that is under pressure. Consumers are increasingly switching to private label dairy. This puts some pressure on FrieslandCampina's 'green strategy'. On the other hand, buyers demand that sustainability requirements be implemented on the farm, so it would be naive to change course again in panic. The dairy cooperative continues to stick to the course it has set, they indicate. It is important for FrieslandCampina to weather the current inflation storm. So for the time being, all hands are on deck on the ship of helmsman Hein Schumacher.