The contours of another FrieslandCampina are slowly becoming visible. The Dutch dairy cooperative announced on Tuesday that 1,800 employees, more than half of whom are in the Netherlands, will have to look for another job. This corresponds to 8 percent of the jobs.
FrieslandCampina employs approximately 22,000 people worldwide. Next year, 1,200 of them, mainly in support functions such as finance, sales, research and IT, will lose their jobs. No jobs will disappear in the dairies themselves, nor will production locations be closed. The reorganization will cost approximately 170 million euros.
The dairy company says it has performed “very disappointingly” in the first half of the year. It booked 8 million euros in net profit, 95 percent less than a year earlier. In previous years there had already been declining profitability. “We must now take the necessary steps to turn the tide and improve business performance,” a spokesperson said.
The job reduction is part of the plan announced in October to reduce costs by 400 to 500 million euros annually from 2026. Job reduction should contribute 180 to 200 million to this. Where the other hundreds of millions will come from will be determined in the business units in the coming months. The central organization in Amersfoort will therefore have less power and responsibility. Furthermore, part of the cost savings comes from digitalization of business processes, which should increase efficiency.
Cuts are also being made on the development of new products. The spokesperson: “You can develop a new dessert of the month every month, but you can also suffice with a new dessert twice a year. This saves you a lot of development costs.”
High milk price
FrieslandCampina suffered in recent months because it was unable to compensate for the relatively high milk price that its 15,000 members receive through a higher margin on consumer products. “The share of our products has fallen in almost all our markets,” the spokesperson said. Due to high inflation, consumers more often opted for private labels than for the more expensive FrieslandCampina brands.
According to the company, the problems are more fundamental than the milk price. “Our production and support costs are too high across the board compared to our competitors. As a result, we cannot compete well and our profit margins are too low.”
According to Richard Scheper, dairy analyst at Rabobank, the entire dairy sector in Europe is undergoing a major transition. The supply of milk has decreased worldwide, but especially in Northwestern Europe, due to a number of dry summers, the difficulty for farmers to earn enough from milk and increasing regulatory pressure. This is one of the reasons why dairy companies have closed production locations in recent years. For example, FrieslandCampina discontinued a dairy factory in Rotterdam and a butter factory in Den Bosch, and Danish competitor Arla did so with two British factories. A dairy factory in Belgium went bankrupt.
In addition, costs for dairy companies are increasing due to scarcity on the labor market, rising interest rates, more regulations and higher requirements regarding sustainability. Recent inflation has accelerated these processes, Scheper sees. “Three years ago, a milk price of 40 cents per kilo was considered good. This is now too little for a farmer to cover all labor, financing and sustainability costs.”
According to Scheper, dairy companies must also have the financial space to innovate and respond to changing demand. For example, the demand for regular liquid milk is declining, but the consumption of cheese in Europe is increasing. The production of cheese requires roughly nine times as much milk as a liter carton of milk. There is also less demand for baby powder because fewer babies are being born in many countries. At the same time, due to the aging population, more medical nutrition is needed. Scheper: “We will therefore consume dairy differently, not necessarily less.”
FrieslandCampina wants to use approximately half of the 400 to 500 million euros in announced savings to compensate for inflation. The rest goes to investments and higher net profit. That profit is distributed to the 15,000 members who are also suppliers to the company. It had already been announced that there will be no profit distribution this year.
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