Dutch lessons for the Irish dairy industry
Speaking at the Positive Farmers conference in Clonmel, Co. Tipperary today, Mr Piet Boer, dairy farmer and Chairman of FrieslandCampina, the world’s 5th largest dairy company, and Europe’s largest farmer owned dairy co-operative, outlined the challenges and opportunities for the dairy industry over the coming years.
Giving an overview of the post-quota market outlook, Mr. Boer concluded;
- No productions shocks are expected with the abolition of EU milk quotas in 2015.
- We have seen and will continue to see an increasing share of EU milk being exported.
- Dairy companies will need to remain competitive at an international level if they are expected to continue to return good prices to their farmers at home.
In his presentation to the farmer audience, Mr Boer demonstrated that there has been a convergence of milk prices globally over the past ten years. The average global milk price now runs closely in parallel with average EU milk prices. Global demand for dairy products is also growing, forecasts between 2012 and 2022 show;
- Cheese: 15% increase in demand globally for cheese, with Saudi Arabia seeing a potential increase of over 60%
- Skim Milk Powder: >20% increase in demand. With China and the USA seeing increases of over 30% and 40% respectively
- Butter: Expectations are for close on 25% increase in demand globally, with almost a 35% increase in India.
The EU can expect to maintain its market share on many key exports products during this timeframe. Exports of dairy products by member states outside the European have grown steadily in recent years, up from a milk equivalent of 7.7% in 2008 to >10% today.
On the expansion of dairy markets internationally, especially China, Mr Boer did sound a word of caution for the Irish Dairy Industry. With growing demand for dairy products, and a heightened regulatory demand for supply chain sustainability and food safety, Chinese buyers will want to deal with big international suppliers, with extensive supply chain capability and product portfolios. This could prove a challenge for the fragmented Irish dairy industry.
From Mr. Boer’s presentation it is evident that FrieslandCampina’s success can be attributed to;
- Strategy: FrieslandCampina generates about €1 of revenue for every litre of milk processed. A clear focus on growth and value creation is documented in their “route2020” strategy.
- Developing with the Market: The co-operative sees the largest growth in demand in Asia. FrieslandCampina today have offices in over 28 countries globally and a strong proportion of their employees are based in China. It is also interesting to note that the co-operative have almost as many member dairy farmers (19,487 in Holland, Germany and Belgium), as employees globally, 19,946.
- Profitable Milk Conversion: The co-operative gives great attention to generating pre-defined profit levels on every tonne of milk processed. This strategy is yielding results, showing an added value creation for Farmer Members of approximately 0.9 cents per litre in 2008, increasing to 2.9 cents per litre in 2012, and based on half year predictions for this year could be as high as 3.5 cents per litre in 2013.
- Nurturing Co-operative Talent: Lastly, but by no means least, the Chairman of Europe’s largest dairy co-operative, underscored the importance of good corporate governance in the success of the co-operative. FrieslandCampina places significant influence on;
- Establishing governance capability amongst is farmers members at a young age (FrieslandCampina has over 4,000 young farmers)
- Developing and encouraging training programs for young farmers, especially in the areas of corporate governance and international business understanding.
- Through its young farmer governance structure, FrieslandCampina identify and nurture the potential leaders of the future. The reasons for this are quite simple; you cannot expect, or afford for any shareholder member to go from the farm to the board table, without a grounding, knowledge and understanding of the complexity and international reach of the €10+ billion plus business that FrieslandCampina is today.