How Cono's Big Credit Faded

Waiting lists to become a member of the cooperative are no longer there. The barriers that were always there to join have recently been removed. This is an attempt to maintain the supply volumes, although this decision is sensitive to the members. The proud dairy cooperative from Beemster does not have the momentum in the market on its side for the time being. 

Decrease in milk price
Cono's poor performances are not from yesterday or the day before. Halfway through 2021, she lost her leading position in the Milk price comparator van Boerenbusiness to even drop back to the last position the following year. Cono's milk price did not rise to the levels of over €60 per 100 kilos achieved by other processors, although the additional payment did ease the pain somewhat. By mid-2024, the leading position is still not in sight and the cooperative can be called a mid-engine. However, looking back over the past ten years, they still pay the highest milk price on average.

Market is not cooperating
Cono is a cooperative with strong cheese brands, of which Beemster is by far the best known. The entire strategy of the company is aimed at flourishing with branded cheese. That has always worked very well in the past, but in recent years the execution has been less successful. Or actually it is mainly the market that is not cooperating. Since the war in Ukraine, cheese prices have been structurally higher. Cheese without a brand is often expensive enough for many consumers. Not only cheese, but dairy in general is a driver of food inflation that is difficult to decrease. 

Consumers are increasingly choosing private labels and increasingly do their shopping at discounters, as various studies show. And Beemster cheese is not always on the shelves there. Ultimately, some 70% of the turnover is earned on the Dutch market. In Germany, also an important sales market, the situation is more or less the same. 

Actual milk price paid
According to Cono, it can maintain sales volumes, but the additional price has come under pressure. This is also indicated by Cono itself in the annual report, where they say that in the premium segment the room for price increases is limited. Cono has the luxury of being able to process two-thirds of the supply into milk powder, but that is not a solution at the moment. After all, the milk powder market has recently lagged far behind the high valuations for butter and cheese. In fact, powdering is rarely a real solution, except to deal with temporary imbalances.

A choice that was recently made is to only use the actual paid milk price - the factory average - to announce. Now there is nothing wrong with that in itself, because other processors are increasingly doing that. But in addition, the choice was also made to no longer share the fat and protein prices publicly, which has made it more difficult to compare the Cono milk price. This is a striking choice by CEO Jerry Griep, because when he took office last summer he said still want to return to the top of the Milk Price Comparison. Apparently that is more difficult than expected. In addition, a defensive attitude does not really fit if you yourself are looking for for extra milk; potential entrants simply do not blindly sign the cross and want to be able to compare milk prices that they can receive themselves. The average factory performance does not help them much in this.  

Dissatisfied members
Meanwhile, there is also some fiddling going on within the cooperative's rank and file. A group of Cono members orients itself to switch to another processor, it was announced last month. The reason is that they think the milk price is lagging behind and that they have to perform too many 'tricks' to earn all the allowances. The group of dissatisfied members is not very large, about ten members out of more than four hundred, but with a large pool of milk of around 50 million kilos on an annual basis. This represents more than 11% of the milk pool that Cono had last year. Partly for this reason, a possible departure is sensitive, because in the current shrinking market you cannot simply replenish this volume. The consequence is then probably that less cheese can be produced. 

Dairy farmers who do not belong to the club also follow the cooperative's performance critically. Other processors are rolling out the red carpet to welcome dairy farmers. At the same time, a large exodus of members is also unlikely. Cono has the necessary credit with many members due to its good performance in the past. Moreover, the members are often proud of their cooperative and the branded cheeses. With an equity of 55% in 2023, Cono is also an extremely solid cooperative. But of course, the financial appreciation should not be lacking. This is probably also the reason why Cono is increasing the sustainability premium within the Caring Dairy program by €1,50 to €6 per 100 kilos next year.

Plenty to talk about
At the member meetings that will take place this week (12 and 13 November), there is enough to talk about. The members who have been used to the best milk price in the past have been tested for more than three years now. And in the current market conditions with high valuations for bulk dairy, this could well be the new reality for the time being. Cono will continue to adhere to the brand strategy in any case and will certainly strengthen its position in the supermarket shelf, but the cheesemaker will also have to find a way to score again with the milk price. This is to prevent the high credit from being diluted further and thus secure the supply volumes and the place in the dairy landscape.