The struggle of FrieslandCampina

Words by: Sjoerd Hofstee

Dutch dairy co-operative FrieslandCampina has hit financial trouble. While farmer shareholders believe that while the co-op still performs above average they complain that uncertainties in dairy farming are increasing rapidly and are worse than previously thought.

Other experts say the impact of the coronavirus epidemic is the main culprit for the company’s woes.

What is clear is that FrieslandCampina does not run as smoothly as management and members would like.

The results of a member survey initiated by FrieslandCampina itself were presented mid-November. The conclusions are firm, but clear: more than half of the farmers hardly feel involved or feel badly involved in the cooperative. They feel the board and management do not listen to members and have a very limited sense of influence.

The co-op has been unable to make it clear to the members that extra efforts on sustainability are essential if they are to survive in the highly competitive dairy market. It is struggling with a communication problem.

Increasing demands in the field of sustainability, which above all require more costs and work for very little return, are causing great annoyance.

About 70% of Dutch farmers are members of the co-op and many are concerned about its financial position. Recent sales of profitable business units and FrieslandCampina's difficult search for additional financing among members to maintain equity capital have fed the concern.

Two days after the results of the survey came out, FrieslandCampina announced a major reorganization will be launched in 2021, whereby about 1200 of its 10,750 employees in the Netherlands, Germany and Belgium will be made redundant.

While FrieslandCampina is still among the top in the world in international milk price comparison, the difference with many other dairy companies has become noticeably smaller in the last two years Until 2019 the members of FC didn't have too much to complain about, apart from the fact that the milk price for many dairy farmers was simply too low compared to their costs. The coronavirus pandemic certainly has not helped.

The problems facing FrieslandCampina and its members are familiar to dairy farmers worldwide. Certainly in New Zealand, major player Fonterra has also faced increasing financial headwinds and distrust among members in recent years.

It is an issue seen all over the world, especially with the major players such as Milcobel and DMK, the largest dairy co-operatives in Belgium and Germany respectively.

What these major European players have in common is that, from the abolition of the European Union milk quota in 2015, they had to process much more milk within a short period of time. They have a purchasing obligation and are often not as flexible as smaller players.

Moderate results logically feed mistrust among the members of the dairy cooperatives.

Perhaps much more it is the commitment to environmental sustainability that plays an important role. This is certainly the case between FrieslandCampina and its members.

The management of FrieslandCampina sees environmental sustainability as essential to be able to continue to serve important customers such as Unilever. However, the co-op has been unable to make it clear to the members that extra efforts on sustainability are essential if they are to survive in the highly competitive dairy market. It is struggling with a communication problem.

That will have to change quickly, otherwise the trust between members and management will drop to a new low in the coming months. With pressure on the financial results and the organisation due to mass layoffs, this is something the co-op really can’t afford.