FrieslandCampina has to clear away the shards

This is also because FrieslandCampina - and with it almost the entire dairy industry - continued to pay higher milk prices to farmers than the earnings actually allowed for up to six months after the party ended. At FrieslandCampina the cause lies in the high guaranteed price, which cannot be compromised. When that requirement was met, the (party) was really over.

Trading and guaranteed price
During the presentation of the half-year figures, it was stated several times that the guaranteed price in the first half of this year was higher than what was earned with basic dairy. Evidence of this is the results of the Trading business group. He was hit hard and had to report a loss of €138 million. There may not be a one-to-one relationship between the result of Trading and the amount of the guaranteed price, but there is a strong correlation. If Trading runs well, the guaranteed price is usually recouped by the company. If a loss is incurred, the guaranteed price is usually too expensive. What is even more important is that, in addition to the guaranteed price, FrieslandCampina also has to bear (partly) the costs of all kinds of allowances, such as the grazing allowance, of the renewed quality and sustainability program 'Foqus planet'.

Business thermometer
Trading is not the largest part of FrieslandCampina in terms of turnover, but it does handle the largest volumes. It is the most visible part for the members, because this is where the large cheese, butter and powder factories belong, where the old-fashioned 'stamping work' takes place. Perhaps also the least sexy part for managers, but throughout the history of FrieslandCampina it is often the part that is the thermometer for the functioning of the group.

Guaranteed price and Rohstoffwert
CEO Jan Dirck van Karnebeek and CFO Hans Janssen seem to expect Trading to perform better in the second half of 2023. This is mainly because FrieslandCampina's payment price will no longer be as far above the dairy market as it was in the first half of the year, and because the dairy market may then stabilize slightly more.

This is not necessarily good news for dairy farmers, because if the guaranteed price no longer exceeds the dairy market, in the current circumstances this cannot mean much other than that this price will decrease. That is of course bad luck for them, but not surprising. The so-called raw material value index, the 'Kieler Rohstoffwert' for milk has been several euros below the limit of €40,00 per 100 kilos since April and it does not seem to be getting any better.

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Business was also not going well in the Food & Beverage business group, which had grown into a kind of hydrocephalus within the company under Van Karnebeek's predecessor. Due to significantly changed economic circumstances, consumers worldwide are increasingly ignoring more expensive branded products and opting for private label products and other basic foods. Good profits were achieved in Ingredients and Specialized Nutrition, but not enough to offset losses elsewhere.

Psychological support
All in all, FrieslandCampina was unable to present a measly €8 million in profit for the first half of this year, on €6,9 billion in turnover. There is no additional payment for members to derive from this. Now for a dairy cooperative the milk price is much more important, and that price was not bad, but the dollop of whipped cream on the cake is really missed. Especially because costs on the farms are rising rapidly and because a good milk price (and a well-functioning cooperative) also provides psychological support for the troubled farmers.

'No withdrawal'
And then that €8 million: the figures presented almost give the impression that this amount has also barely been earned. Especially because the results also include a 'negative reservation' of €1,68 per 100 kilos. For 4,8 billion kilos of milk, this amounts to more than €80 million. According to FrieslandCampina, this should not be seen as a withdrawal from assets. It is an accounting item, but it does indicate that there is still a lot of work to be done in the coming months to turn the tide. And for the members we hope that a small payment link will follow at the end of the year.

Less 'corporate'
The new CEO Van Karnebeek cannot be blamed for this. He was allowed to present the legacy of his predecessor. In the coming months he will have to work on shifting boundaries, cutting costs, pushing buttons in the company and perhaps also 'decorporatising' it a bit. It is not a good Dutch word, but perhaps it would become more like an organic whole in the company and less through remote directives. The new CEO does not seem to be an unsuitable person for this.