FrieslandCampina to introduce independent organic milk price

20 September 2012

With effect from 2013, FrieslandCampina’s organic member farmers will be paid a price for organic milk that is independent of the prevailing milk price. FrieslandCampina presented the plan to its organic member farmers today. The organic milk price consists of a guaranteed price based on the farm gate milk price for organic farm milk in surrounding countries. Amongst others the current performance premium will be added, which is based on the operating result of the group as a whole and is paid annually. Like their non-organic counterparts, organic dairy farmers who graze their herds outdoors will also receive a meadow milk premium of 50 cents per 100 kg. The new system, which will run for a three-year period, was devised by a working party which included four organic member farmers. If the Members’ Council of dairy cooperative FrieslandCampina U.A. adopts the proposal in December, the initial guaranteed price for organic milk will be announced on 7 January 2013.

Royal FrieslandCampina Supervisory Board member and working party chairman Frans Keurentjes: ‘A competitive price for organic milk would give organic member farmers continuity and security, as well as contributing to FrieslandCampina’s goal to expand in the organic dairy segment.’
Reflecting the market
The guaranteed price for organic milk reflects the market for organic farm milk in north-western Europe and is a weighted average of the price of farm milk in the Netherlands (9%), Germany (35%), Denmark (28%) and the United Kingdom (28%). The price of organic milk (including retrospective payment) from representative dairy businesses in the various countries will be recalculated to take account of standard prices for fat (4.41%) and protein (3.47%). This will also make the guaranteed price for organic milk comparable with that of non-organic milk. The milk price paid to individual dairy farms will be based on this and is determined by the fat and protein content, annual supply and the seasonal milk supply pattern.
The guaranteed price for organic milk will be published on the first Monday of each month. Any necessary corrections to the estimated milk price can be made in the following month. Annual corrections to the guaranteed price can be made with the annual payment of the performance premium. 

Performance premium, fixed member bonds and meadow milk premium
Every year, every member dairy farmer receives a performance payment and an amount of fixed member bonds from the financial results of the business. The performance payment and the amount of the fixed member bonds depends on the financial results achieved by FrieslandCampina and the retained earnings policy adopted. Of the net profit of the business, based on the guaranteed price and net of member bonds, member certificates, perpetual notes and profit accruing to the participating interests, 30% is paid to the member dairy farmers in the form of a performance payment and 20% in the form of fixed member bonds. Both are calculated based on the value of the milk supplied in the previous financial year.

The meadow milk premium, which was introduced in 2012, will be paid out in the same way as is currently the case with non-organic dairy farmers.

Proposal post-calculation for 2012 
FrieslandCampina has also submitted a proposal to apply a post-calculation for 2012 based on the new organic milk price system. If this is higher than the milk price based on the surplus cost allowance, FrieslandCampina will make up the difference. No negative corrections will be applied.