Merger of FrieslandCampina and Milcobel joyful and necessary

Member dairy farmers will undoubtedly feel differently, but they may well agree with Fitch's analysis. While revenue will receive a boost of around 12%, Milcobel's margin contribution is relatively low, as Fitch analysts note in their November report. Therefore, profit will initially decline as a result. The recent acquisition of Wisconsin Whey Protein is a more promising development for earnings, provided the purchase price wasn't too high.

Peace and direction
FrieslandCampina has had a few difficult years. There have been significant restructurings, divestments, and several course changes, but compared to its competitors, it has fallen behind in recent years. Competitors like Arla, Lactalis, Müller, and closer to home, A-ware, have fared better.

With Sybren Attema as chairman and now Jan Derck van Karnebeek as CEO, the company seems to be back on track. There's certainly more calm, everyone seems to be on the same page, and there's more action going on instead of just shifting finances.

Securing supply
The merger with Milcobel primarily helps secure the supply base and maintain market share, however strange that may sound at a time when milk availability is more of a burden than a benefit. However, the latter is a short-term problem. Structurally, milk supply is expected to decline, especially in Northwest Europe. Restrictions on agriculture, low appreciation for farmers, a declining number of farms, and high production costs are among the causes. Therefore, Milcobel is truly an asset, although FrieslandCampina initially sought larger partners. There are no longer many opportunities to acquire a significant number of suppliers in one fell swoop.

From repulsion to attraction
This may be bitter for some dairy farmers, especially in Belgium, although the higher milk price (hopefully for them) after the merger makes up for it. Just ten years ago, FrieslandCampina was doing its best to get rid of a whole group of Belgian suppliers. FrieslandCampina Belgium had to restructure and tried to sell over 440 farmers to Milcobel. Milcobel was receptive, but not all the farmers in question were happy with the idea.

A significant number left for other processors. When FrieslandCampina sold its powder production in Aalter to A-ware in 2020 and also began recruiting dairy farmers, it was still able to capitalize on the disappointment of many Flemish farmers in FrieslandCampina. The situation has now turned around almost completely. FrieslandCampina has opened its doors wide again.

High-protein trend
Milcobel also has more to offer than just milk. Cheese production, and especially whey production, is also a welcome addition, although it's likely there's still some wrangling to be done with Arla. After all, a large portion of Milcobel's whey currently goes to this company.

Whey is (once again) the new gold of dairy, although this product was also the basis for FrieslandCampina's earlier baby food success. It's mainly the high-protein trend that's driving whey's high demand. For this to happen, cheese whey must first be concentrated and upgraded to whey protein concentrate (WPC) and whey protein isolate (WPI). WPC80 currently fetches between €13.000 and €14.000 per ton, and WPI90—depending on the precise specifications—up to over €24.000 per ton. These WPCs and WPIs are used in sports nutrition, medical nutrition, and nutrition for special target groups, such as the elderly. They also play an important role in the diets of people taking weight-loss medication.

Catching up
With the addition of Milcobel and Wisconsin Whey Proteins, FrieslandCampina can make strides in the whey market and close some of the gap with companies like Arla. FrieslandCampina, however, is more than just whey. The company remains strong in cheese itself, but also excels in infant nutrition and a wide range of dairy products in Asian, Arab, and African markets. However, with "white" dairy in Europe, it is less strong than, again, Arla. The new dynamic at FrieslandCampina also creates new opportunities and new goals. The merger with Milcobel could be a good stepping stone in this regard. This is also good for member dairy farmers, although Milcobel members are expected to see the most progress initially. After all, their former cooperative has been performing poorly for some time. FrieslandCampina members must consider the merger's benefits over the longer term.