Analysis Agribusiness
Dutch agro giants in turbulent waters
When we compare the results of the largest slaughterer, milk processor and feed supplier in our country, it is striking that they are anything but rosy. It concerns Vion, FrieslandCampina and ForFarmers; three agro giants, each of which has been hit hard by the shrinking livestock population and is therefore forced to reorganize. The shrinking German market also plays a negative role in the results. It is also striking that smaller peers in the feed, meat and dairy sector are apparently less susceptible to the declining animal numbers. Tall trees catch a lot of wind.
FrieslandCampina and ForFarmers recently published their half-year figures that show sad parallels. At ForFarmers they have been used to some setbacks in recent years, but red figures have never been written before. FrieslandCampina also saw its profits decline to a meager net profit of €8 million. Vion is also having a hard time and recorded a significant loss of more than €2022 million in 100, partly due to a provision that was made in Germany. The results of the three agricultural giants each have their own story, but the decline in livestock can be seen as literally and figuratively the common denominator in the financial headwind.
Overcapacity at ForFarmers
The company apparently most affected by the declining animal numbers is ForFarmers. The red half-year figures at ForFarmers are a painful development, but in Lochem they seem to be taking the loss by looking ahead. The feed industry was already a squeezed business, but the margin of the market leader has now all but evaporated. 2023 is labeled by ForFarmers as a transition year and that is rightly so. After all, the necessary measures have already been taken to turn the tide.
In April, after many changes, Pieter Wolleswinkel was given final responsibility as CEO. He seems suitable to lead the company in difficult times and to bring the farming feeling back into the organization. ForFarmers recently also decided to leave the Belgian market and expand in the growth market Poland. The company is thus trying to position itself better, although further volume decline continues to loom. After all, more than half of the turnover is achieved in the Dutch home market and the thinning of the livestock population will probably continue here to a greater or lesser extent. The rapid shrinkage of the German livestock herd is also hitting hard.
The feed giant acknowledges that it is difficult to operate in a highly competitive market. Livestock farmers also seem to feel more at home with medium-sized feed companies. Despite the shrinking livestock population, sales volumes at cooperatives such as AgruniekRijnvallei, ABZ De Samenwerking and Voergroep Zuid are holding up well or even growing. Competitor De Heus is less susceptible to the decline, because its business is spread worldwide. ForFarmers is currently struggling with overcapacity in its factories. As a result, around 100 jobs are at risk to repair the margin. Investors have long since stopped being enthusiastic about shares that have recently risen above their historic lowest levels. Despite all the headwinds, ForFarmers remains count on growth, although in the current market it does give the feeling of 'hoping against hope'.
Loss of member milk at FrieslandCampina
FrieslandCampina is also struggling with overcapacity in its production apparatus. Combined with headwinds on the dairy market, this put heavy pressure on the figures in the first half of this year. According to recently appointed CEO Jan Derck van Karnebeek, these figures were 'unworthy of FrieslandCampina', and he makes no bones about it. The overcapacity is partly due to quitters and partly due to dairy farmers who try their luck elsewhere, resulting in the loss of hundreds of members every year. The latter in particular hurts, because on balance the dairy herd in the Netherlands is not shrinking that quickly. Smaller processors also appear to be in demand in the dairy sector. It is not yet possible to say what the financial performance of the competition was in the first half of this year, because this has not yet been reported. Despite the relatively high milk price, FrieslandCampina has difficulty retaining its members.
As one of his first exploits the new CEO will re-examine the cost structure. This means that the dairy cooperative is in danger of falling from one reorganization to another. The reorganization announced at the end of 2020 has only just been completed. The necessary efficiency improvements were also made in the previous years by closing factories and divesting brands. For example, a year ago the German consumer branch was sold because it was no longer possible to earn money from it. FrieslandCampina certainly does not want to call the announced reorganization a reorganization. Probably because this sounds unfriendly and reflects poorly on the cooperative that wants to recruit new members. By their own admission, this campaign has been successful, although membership growth has not yet been quantified. However, the influx appears to be a handful rather than a countryful of dairy farmers. A positive membership balance still seems far away due to the expected outflow.
German problems at Vion
Vion's problems are not so much in its own country, but mainly in Germany, where the slaughterhouse generates half of its turnover. However, this also reflects negatively on the Netherlands. In 2022, Vion would slaughter more than 15% fewer pigs in Germany. Due to the rapidly shrinking German pig herd, the slaughter hooks are no longer full and the fixed costs are much too high. The slaughterer has no choice but to reorganize and close factories. As a result, a one-off charge of €2022 million was taken in 63,5, but apart from that, Vion is far from profitable. Industry rival Van Rooi Meat has been making big profits for years and other slaughterers in the Netherlands are also easily making negative figures. However, Vion is an outsider in financial terms. Due to the size of the company, it lacks flexibility. In contrast to FrieslandCampina, Vion wants to remain in Germany, but is undergoing major reorganization. Despite the problems, CEO Ronald Lotgerink quite optimistic. The experienced hand in the meat world also thinks he can wash this pig, and in any case he adopts a combative attitude.
Political hope for better times
The agricultural giants undoubtedly hope for better times for the future. Much depends on the political climate. The newly elected cabinet must implement the nitrogen policy, which determines the size of the livestock population in our own country. But even with a more 'farmer-friendly cabinet', animal numbers will not decline further. The shrinkage of the livestock population also appears to be continuing on the German market. Creativity and ingenuity therefore seem necessary to cope with the decline in livestock, because as a supplier or buyer on the farm, the law of numbers applies all too hard. Especially when you grow up.
Wouter Job
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