Profit FrieslandCampina shrinks: decrease of 94 percent | Economy

“The results for the first half of the year are not at the level one can expect from FrieslandCampina. Improving our profitability in 2023 and beyond is therefore our top priority,” says Jan Derck van Karnebeek, CEO of the company, in a statement. Turnover rose in the past half year, by almost 5 percent to 6.9 billion euros.

Nevertheless, the CEO is concerned: he says he will review the costs of the company. Whether this will lead to a reorganization, Van Karnebeek did not want to say. “We will see what is needed in the coming months.”

Danielle Duijndam, dairy analyst at Rabobank, cannot comment on the specific situation at FrieslandCampina, but can talk about dairy companies in general. At the end of last year and early 2023, they had to deal with extremely high prices of more than 60 cents per kilogram of milk, which they paid to dairy farmers. About double what they had been used to for years.

Europe was struggling with a shortage of milk, caused by several factors, including drought, but also farmers who stopped their business. “There was some battle between processors for the milk. One way to bind dairy farmers to you as a dairy processor is to pay a favorable milk price.”

In the long term, the payment of the higher milk price did have an effect on dairy companies: “They bought relatively expensive milk for a certain period, but the demand for dairy lagged somewhat.”

Because due to the high consumer prices, many people in supermarkets were looking for a cheaper alternative, for example by switching from an A-brand to a cheaper private label. This had consequences for the volumes sold. “Look, for example, at the sharply increased butter price, which meant that less butter was sold,” says Duijndam.

ABN Amro conducted a study into the sale of dairy products in supermarkets. “Dairy volumes in the Netherlands are about 6 percent lower than in 2019,” says Nadia Menkveld, agricultural and food sector economist, about the study, which also showed that people started cooking with other ingredients and bought less. “Those lower volumes are because purchasing power is under pressure. Not only in the Netherlands, but also in other important sales countries.”

The result was that dairy companies had to sell their expensive stock at lower prices. That is also what FrieslandCampina says in its explanation; the company speaks of a ‘challenging’ first half of the year, in which the economic conditions for the company have deteriorated.

For the second half of the year, FrieslandCampina expects the milk price paid to dairy farmers and the basic dairy prices to come closer to each other. As a result, the losses will also have less of an impact on the results, the group expects. That is also what Duijndam (Rabobank) says: ,,The market is becoming more balanced.” The milk price has now dropped from 60 cents to about 40 cents.

However, it is expected that sales will remain under pressure due to inflation and consumer loss of purchasing power. Analyst Menkveld (ABN Amro) agrees: “In the Netherlands, purchasing power is expected to fall by another 0.2 percent this year, according to the Central Planning Bureau. This decrease comes after an already significant decrease of 2.7 percent in 2022. Purchasing power is expected to recover in 2024, but not completely. Bottom line, Dutch consumers will therefore have less purchasing power in the coming period.

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