Analysis milk
Dairy company profile determines pace of price decline
Fortunately for Dutch dairy farming, the price decreases in the first round of new milk prices in January were better than expected. Moreover, the reductions only started as of the new year. In Belgium the reductions started earlier, in Germany the steps down are bigger.
Read this article?
Become a subscriber and get instant access
Choose the subscription that suits you
Is Dutch dairy doing better or are there other factors at play? The first is not necessarily the case. This is evident from the international milk price comparison of the European Dairy Farmers and ZuivelNL. The profile of the company is much more important.
Neighbors are taking big steps down the road
The German dairy industry paid better prices than the Dutch one last year, according to the publications. High milk prices were also paid in Belgium. It was the result of a record high dairy market. Some Belgian milk prices are now more than €6,00 per 100 kilos below last year's top level. This is evident from, among other things, the Belgian Milk Price Comparator van Boerenbusiness. Similar movements are visible in Germany. Meierei Barmstedt, part of Gut von Holstein, has reduced the milk price for January from €61 per 100 kilos to €55 per 100 kilos. Moreover, the milk price will fall much further in the coming months, director Dirk Rowedder reports in a letter to suppliers.
Retail contracts in the spotlight of the market
No company in the Netherlands has yet dared to make such statements. Time will tell whether it is necessary. How far and how quickly milk prices will fall in the coming months - and they will do so - largely depends on the company profile. Dairy companies with a large share of retail sales, such as Arla Foods, are the most resistant to price cuts for the time being. At the end of last year, several contracts were concluded with large retailers at high sales prices, especially given the current dairy market. The German DMK, FrieslandCampina and other companies with large retail sales also benefit from this.
It is a well-known situation in dairy. At times when the dairy market is rising rapidly, the 'bulk producers' are the first to benefit, while the dairy companies with a lot of consumer sales have to wait and see. Now these companies are in the 'bump' of the high market and farmers benefit from it. Brand producers, such as Cono Kaas, hope to remain in the aforementioned category for as long as possible, especially because they often had extra difficulty moving up.
Premium B2B
Dairy companies with 'premium B2B contracts' are also still able to withstand milk price reductions. This group of companies supplies milk products with additional characteristics (animal and climate friendly, extra sustainable) to food giants such as Nestlé, Unilever and Danone.
The latter group of companies mainly produces volume products for the free market/world market and is the first to feel the effects of a deteriorating dairy market. Belongs to Belgium Laiterie des Ardennes belongs to this group, in Germany this includes the aforementioned Gut von Holstein.
In reality, the differences between the various groups of dairy companies are somewhat less clear than stated here, but the distinction does help to understand how companies operate with their milk price.
Fight for farmer
The fact that the differences in payments between dairy companies in the Netherlands have so far been relatively small is also influenced by something else. That is the battle for the dairy farmer. Dairy companies will see the number of dairy farmers decline further in the coming years and are therefore doing their best to attract as many permanent employees as possible. This can only be achieved with competitive milk prices and favorable conditions for dairy farmers. This also applies in Belgium, but there the number of parties competing for the dairy farmer's favor is slightly smaller than in the Netherlands.