The Russian ban on western agricultural produce hit profits at Dutch dairy co-operative FrieslandCampina in 2014. The negative effect of the boycott on operating profit cost the company €80m.

While revenues remained stable at €11.3bn, when one-off items and currency translation effects are excluded, operating profit was down 13% to €284m.

The fifth largest dairy company, processing a milk pool twice the size of Ireland’s entire pool, said it expects to benefit this year from a weak euro, making its exports more competitive.

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Outgoing, CEO Cees’t Hart said that while the results were more influenced by external conditions than in other years, he warned that the disappearance of the EU milk quota will possibly lead to even more volatility on the dairy market. He added that the company was well positioned for the new era.

FrieslandCampina plans to invest €600m in infrastructure and production capacity as well as advertising to better capture emerging market growth potential, but said the environment is likely to remain difficult in markets closer to home.

In its ingredients division, it said that weak demand coupled with greater supply was putting pressure on sales prices and margins. The company saw 5.7% volume growth in infant nutrition, especially in China and Hong Kong.

Last year, it signed a letter of intent for a 50-50 joint venture with China Huishan Dairy Holdings to market and distribute infant formula.

Its dairy-based beverages declined 5.4% in volumes due to lower consumption and pressure on market shares. Its branded cheese volumes declined 14.5% due to the Russian boycott and competition on the European market. The co-operative said that even if the boycott is lifted, it does not expect Russian demand to recover quickly.

Comment

Geopolitical tensions and adverse currency effects had significant influence on operations and performance in 2014. Despite its size, these are all factors outside the co-ops control and show the importance of being an efficient producer, while having diversified markets and products to better insulate the business in volatile times.