FrieslandCampina profits slide as more than 600 farmers quit dairying

More than 600 farmer suppliers to Dutch dairy co-op FrieslandCampina quit their business in 2018 and exited dairy farming altogether, according to the co-op’s annual report for 2018.

FrieslandCampina said the number of dairy farms that supplied the co-op with milk in 2018 stood at a little over 12,100, which is more than 600 farms fewer than the previous year.

Dutch milk production was in freefall throughout 2018 as new quotas on phosphates forced many Dutch dairy farmers to cull significant numbers of cows with many farmers exiting dairying altogether.

Sales for the year declined 5% to €11.6bn, which the co-op attributed to currency headwinds and the sale of its Riedel business last year

As a result of these 600 farmers exiting dairying, FrieslandCampina’s milk supply fell by 3%, or almost 330m litres, in 2018 to just over 10bn litres.

In 2018, Friesland Campina’s average milk price paid to farmers stood at 38.4c/l, which is 2.5c/l lower than the 2017 milk price.

The FrieslandCampina milk price includes a base price of 37.1c/l, as well as a dividend payout from the co-op of 0.5c/l and a Meadow Milk premium of 0.7c/l, which is a bonus payment for cows fed on grass.

Profits

Overall, FrieslandCampina saw its operating profits for 2018 fall sharply by 23% to €342m, as profit margins narrowed from 3.7% in 2017 to 3% last year.

The company blamed the fall in profits on lower dairy market returns and increased competition in the infant formula category in China and Hong Kong, where the co-op owns its own baby formula brand called Friso.

Drop in sales

Sales for the year declined 5% to €11.6bn, which the co-op attributed to currency headwinds and the sale of its Riedel business last year.

FrieslandCampina chief executive Hans Schumacher described 2018 as a year of “transformational change” for the co-op.

“In 2017, it became clear that the company had to operate more competitively in order to improve its financial performance. A large-scale behaviour and culture programme was initiated to increase the company's speed and competitiveness. In 2018, the organisation and its management were drastically changed, which gives FrieslandCampina greater focus and commercial strength while enabling us to respond faster to customer demands,” said Schumacher.