Impact of Russian boycott on FrieslandCampina

20 August 2014

Russia’s boycott of dairy products from the EU and other areas is having an impact on the European dairy sector; approximately 250 million kilos of cheese can no longer be exported from the EU to Russia. Dutch dairy companies account for approximately 50 million kilos of these cheese exports. FrieslandCampina is also feeling the effects of the boycott. In 2013, FrieslandCampina exported products worth approximately 190 million euros to Russia.

Alternative sales
Last week, FrieslandCampina took measures to mitigate the direct consequences of the Russian boycott as far as possible. Cheese production specifically for the Russian market has been suspended. The cheese that cannot now be exported to Russia has for the most part since been sold in other markets. However, to mitigate the medium-term impact as far as possible, too, FrieslandCampina is investigating alternative sales markets. More milk powder is being produced to relieve the cheese market.

Market distortion
The dairy products intended for Russia will have to be sold elsewhere on the European and global markets. This market distortion places extra pressure on the dairy market. The selling prices for milk powder and butter were already under pressure owing to the declining demand on the global market and the consistently high milk supply in 2014. For example, the listings for milk powder and butter were already falling sharply in July and early August.

Impact on the guaranteed price
The guaranteed price that FrieslandCampina pays its member dairy farmers every month is based on the milk prices paid out by the reference companies in Western Europe. On Monday, 1 September, FrieslandCampina will publish the guaranteed price for September. As a result of the market developments, the guaranteed price will in all probability fall.

FrieslandCampina Russia
The FrieslandCampina site in Stupino in Russia is in full production with Russian milk, which is used mainly to produce yoghurt and yoghurt drinks. The cheese stocks still available in Russia can be sold as normal.

Mitigating the impact
FrieslandCampina is in close contact with the NZO (Dutch Dairy Organisation), the EDA (European Dairy Association), LTO Nederland (the Dutch Federation of Agriculture and Horticulture) and the Dutch Employers’ Federation VNO-NCW to explore all the options to mitigate the impact on the dairy sector and the dairy farmers as far as possible. Currently, market prices are still far above the EU intervention levels, so this support will not be used. Governments can, however, support the dairy sector to look for new markets by removing trade policy obstacles.

Long-term prospects
In the long term, the prospects for dairy are good owing to the growth of the global population and the increasing demand for nutrient-rich food as a result. FrieslandCampina has important sales markets for various product categories, such as dairy drinks, infant nutrition, cheese and ingredients for the food and pharmaceutical industry in Europe, Southeast Asia, the Middle East and West Africa. Globally, cheese and other dairy products are exported to more than 100 countries. As stated, owing to the increasing market dynamics and the absence of EU support of the dairy market, the selling prices and therefore the milk prices, will be more volatile for farmers. FrieslandCampina has a buffering effect for its members because of its wide product range and the large geographical spread of its operations.