Dutch co-op's profit slumps

For the first six months of 2023, Royal FrieslandCampina, owned by 15,000 farmers in Netherlands, Belgium and Germany, recorded an operating profit of 47 million Euros, an 86% drop compared to the same period last year. Net profit decreased by 94.2% in comparison to the first half of 2022 to 8 million Euros.

The co-operative says the first half of 2023 was challenging.

The milk price that FrieslandCampina paid to its member dairy farmers was high relative to the sharply declined market prices for commodity dairy products, particularly for cheese and butter.

Expensive product stocks had to be sold in a declining dairy market. Furthermore, volumes declined as markets suffered due to a loss of purchasing power and a shift in consumer spending towards private label.

The co-op says its Food & Beverage and Trading business groups were hit the hardest by this. The Ingredients and Specialised Nutrition business groups on the other hand had a good start of the year, but this could not compensate the loss in profitability at the other two business groups.

As a result of the above developments, net profit declined sharply in the first half of the year.

In the first half of 2023, FrieslandCampina's revenue increased by 4.6% to 6.9 billion Euros compared to 6.6 billion Euros in the same period last year, primarily driven by earlier implemented price increases.

However, in the first half of 2023, commodity dairy prices dropped faster than the milk price paid by FrieslandCampina to its member dairy farmers based on its milk price system. On top of this, stocks produced at a higher cost price had to be sold at a lower market value, which had an adverse effect on profitability.

FrieslandCampina chief executive Jan Derck van Karnebeek says the results for the first half of the year are not at the level one can expect from the co-op.

"Improving our profitability in 2023 and beyond is therefore our top priority," he says.

"That is why we have implemented short-term cost savings without jeopardising our long-term growth prospects. In addition, we are working on refining our strategy, known as 'Expedition 2030', to structurally improve the profitability of the company, including the lower-margin product and customer segments.

"We look at both the revenue and the cost side of the company for this. Making FrieslandCampina more sustainable, for example by implementing our climate plan, will also be an important focus point within Expedition 2030."

Despite the challenging circumstances, FrieslandCampina says it is investing in future growth and sustainability.

In the Netherlands, FrieslandCampina Ingredients opened a new, sustainable production facility for lactoferrin, an important, high-quality protein for infant and adult nutrition.

A large-scale pilot with a methane-reducing feed additive, in which almost 160 dairy farms with a total of almost 20,000 cows participated, was successfully completed.

This is promising news relating to the future reduction of greenhouse gas emissions at dairy farms, it says.

The co-op is expecting a slightly better second half this year.

"For the second half of 2023, the milk price paid to the member dairy farmers and commodity dairy prices are expected to converge," it says.

"As a result, losses seen in the first half of 2023 due to the difference between milk price paid to member dairy farmers and the lower market value of stocks at the time of sale are expected to have a lower impact in the second half of the year."

However, volumes are expected to remain under pressure in all markets due to inflation.