Friesland Campina, the Dutch dairy giant, has warned that the escalating global trade war ignited by US president Donald Trump and the continuing uncertainty around Brexit negotiations could be bad for milk prices.

Announcing half-year results, the Dutch farmer co-op said negative weather conditions, political developments in the European Union and potential problems in international world trade, such as creating trade barriers or higher import duties in key importing countries, could put milk prices under pressure.

Despite the risks, Friesland said it is safe to assume demand for dairy will continue to grow for the rest of 2018, particularly as a result of high oil prices and strong economic growth in important dairy importing regions including China, and countries in Southeast Asia and the Middle East.

Profits down

Friesland made the announcement as it reported a 36% decline in half-year operating profits to €177m, with profit margins narrowing from 4.5% last year to just over 3% in the first half of 2018. The dairy co-op blamed severe price competition in Asia’s infant formula market, as well as significant losses made on dairy commodity sales in the first quarter of the year for the decline in profits.

The co-op said sales for the first half of the year were down almost 6% year on year to €5.7bn

Friesland revealed it lost €135m in the first quarter of 2018 after selling inventories of cheese, butter and milk powder for prices lower than the milk price it had paid on them a few months earlier.

The co-op said sales for the first half of the year were down almost 6% year on year to €5.7bn. This was mostly related to negative currency translations.

Milk collections from dairy farmer members was down by 1.5% in the first six months of 2018 to 5.5bn litres as phosphate quotas introduced in the Netherlands have resulted in a shrinking of the Dutch dairy herd.

Friesland also announced an interim dividend payment of 41c/100kg of milk supplied to each of its 13,300 dairy farmer members. This will see the co-op pay out just under €22m to farmers, which equates to an average payment of €1,650 per farmer.

Friesland said it paid an average milk price of just under 38c/litre for the first half of the year, which was down from the 40c/litre paid in the same period last year.