FrieslandCampina's battle with the guaranteed price

De literal statement was: "The guaranteed price that FrieslandCampina pays for the member milk supplied fell more slowly than the basic dairy prices in the first half of 2023. As a result, products from stock that were produced at a higher cost price had to be sold at a lower market price."

Game company and cooperation
It is not the first time in recent years that the FrieslandCampina company has suffered from the burden of the guaranteed price. This is partly part of the game between company and cooperative. The latter wants the company to perform as well as possible, which is translated by the member dairy farmers into paying the highest possible milk price. As the property of the cooperative, the company understands that this assignment exists, but in recent years it seems to be having increasing difficulty in meeting that assignment.

Limited elbow room
That is why she tries to escape the pressure of the cooperative in various ways. This is not just to get through life a little easier, but also seriously so that we don't become completely stripped down and can no longer make larger investments. In the latest credit report of Fitch it can be read that FrieslandCampina is not doing badly, but that (according to the credit rating agency) it cannot afford too large expenses.

The company is therefore in constant discussion with the cooperative to alleviate the pressure from that side. For example, every few years there is a discussion about the distribution of profits; what goes to the members and what part remains in the company? The registered member capital is being phased out in favor of delivery certificates, which have a different status as assets. However, these are matters that affect the guaranteed price.

Maintain balance
The discussion starts with the guaranteed price itself: how can the balance be maintained between a maximum milk price for the members and enough remaining capital for the company? What then is a bearable guaranteed price? The composition of the 'basket' of comparison material is important for this. Which companies does FrieslandCampina want to beat in terms of milk price? Every three years they are examined to determine who they should be. These are of course companies from the Netherlands such as Cono and Vreugdenhil and also from neighboring countries, for example Milcobel, Arla and DMK.

German dairy weight
What is remarkable is the large weight of German dairy (over 57%), while FrieslandCampina is retreating further and further from this market and dairy companies in France or Great Britain, for example, are not taken into account at all. Especially because these types of geographical restrictions do not count at all for the organic guaranteed price.   

Other standard contents
Then there is the question of what type of milk to pay for. Different countries work with different standard levels. Dutch milk is paid for at increasingly increasing levels. As of 2020 and as of the beginning of this year the standard levels have been adjusted. Although these adjustments follow the increasing average content of fat and protein in the milk, and more appears to be paid per kilo, but with the successive adjustments, slightly less money has to be paid each time for the same product.

In 2019 it was more than 90 cents per 100 kilos, at the beginning of this year it was about 30 cents (about €27 million). It was also decided in 2019 to no longer include the (increasing) allowances of reference companies in the calculation. Only the normal milk price. This already resulted in a net profit of 50 cents per 100 kilos. With a milk volume of 10 billion kilos, that is €50 million.

The bar keeps being pushed
In short, the bar is constantly being raised. Yet it is apparently not enough to find a good balance between remuneration of the members and keeping enough money for the company so that it can operate comfortably and with sufficient profit. Does the 'profit warning' with which this story began mean that the company is aiming for an interim adjustment of the balance between the cooperative and the company? In that case, the members probably have to swallow and that is of course not advertising at a time when milk is being desperately sought.