Piet Boer’s enthusiasm for the FrieslandCampina model is infectious. It’s simply about driving efficiencies, continuous investment and adding value.

And it seems to be paying dividends. Processing 9.5bn litres, the co-op is currently paying its 14,000 members a guaranteed price of 29.25c (3.47% protein and 4.41% fat). On top of this a performance premium of about 3c/l is also paid based on company performance. With Irish processors paying 24c/litre to 26c/l for December, I ask how is the fifth-largest dairy processor in the world able to return prices 3c to 5c higher than the Irish industry? While Boer acknowledges that Ireland has a great advantage with our low-cost grass-based system, he questions whether this is allowing a lower milk price to be paid. “Is the cost price following the milk price or is the milk price following the cost price?”

But what is the biggest driver of achieving a higher milk price? He is clear. “Value-added is the most important, followed by strong routes to market. Being an efficient processor is a prerequisite.” However, he added there is an end to lower costs and driving efficiencies and this is the reason why processors must strive to add value.

Added-value products now make up 70% of turnover at FrieslandCampina. A high percentage of its portfolio is in consumer products (brands). Unlike the Irish industry, only about one-third of its business is in commodities such as butter, cheese and powders. When prices are on the way up, commodities do better, but on the way down brands do better, said Boer. “In commodities, prices change by the week, whereas consumer prices may be fixed for longer terms and are more insulated.”

Seasonality

Ireland’s seasonality means it can’t produce fresh consumer products all year round for export. This means we are in the full wind of commodities and compete with New Zealand. He believes this is quite difficult as a small player.

Operating margins at FrieslandCampina are high at 4.3%, almost double that of the industry average here. Boer questioned the model whereby co-ops support high milk prices at the detriment of profitability.

He said this means processors will have little to reinvest, will become inefficient and remain at the bottom. If you want to play in the champion’s league, you need to invest, he said. FrieslandCampina’s policy on reinvestment means that 60% of all profits are reinvested (3-4c/l). In 2014, the co-op invested €78m in research and development activities.

Boer’s view on

Milk price:

“It is impossible to predict milk price for 2016 as the major drivers are climate, economics and politics. For a real increase in milk price, we need demand to increase.”

Russia

“The Russian ban cost FrieslandCampina €80m. Russia was a small portion of total exports. We managed to sell this cheese outside Europe for reasonable prices. What was far more damaging was when Poland and the Scandinavian and Baltic countries pushed their product on to the European market. That caused a collapse in the overall European price.”

Low oil prices

“Low oil prices are not good for dairy prices as a lot of oil-exporting countries are also big dairy importers. If oil price goes down, the income of these countries go down. If low oil is sustained, dairy demand will slow. Also, land used to produce ethanol is likely to return to produce feed, causing feed prices to go down.”

China

“I’m not too concerned about China, but it is important to take care not to depend on it. If governments adjust and expenditure is cut, this will lower demand. People then adapt their standard of living.

Background

Having finished his agricultural studies at the age of 22 to return to the home farm, Boer briefly dipped his toes into agricultural politics. He quickly became interested in the co-op model as he felt that it allowed farmers to secure their own destiny. He became a youth director at a food co-op and later at a dairy co-operative, which eventually merged with FrieslandCampina. Boer is now 55 and chair of the board of FrieslandCampina, the Dutch co-operative of about 19,000 dairy farmers, with about 22,000 employees and a turnover of more than €11bn. But he is also a farmer and father of three. Together with his wife, he runs a business that has 150 dairy cows. As the longest-serving member on the board and chairman for the last four years, he is due to retire this year to concentrate on expanding the family farm.

Milk price

For November, FreislandCampina’s standardised price (LTO) based on 4.2% fat and 3.4% protein was 28.93c/litre (excluding company performance bonus), 3.37c/l more than Kerry, and 4.94c/l more than Glanbia. Taking a one-month price can be misleading and looking at the 12-month rolling average to November Glanbia is 3.32c/l less, while Kerry is 1.73c/l less.