FrieslandCampina updates calculation of guaranteed price

FrieslandCampina Members’ Council votes about adjustments of milk price regulations

17 December 2019

Following the three-yearly evaluation of the milk price regulations, the Members’ Council of FrieslandCampina has agreed with updating the calculation of the guaranteed price by a small majority. This means that FrieslandCampina will no longer take into account a number of deductions and premiums that reference companies pay when calculating its guaranteed price*) as from the beginning of the year 2020. The guaranteed price is the price that the company guarantees to pay to the members for the milk supplied. The member council was also informed about the decision of the cooperative board to include KoeMonitor in the basic requirements of Foqus planet, the quality and sustainability programme of the cooperative. Besides, in order to stimulate the developments at the farms of the member dairy farmers, the company will annually make available an extra contribution of 24 million euros.

Because of the accumulation of premiums, the FrieslandCampina guaranteed price was in danger of losing its conformity with the market in the long term. The current guaranteed price system used by FrieslandCampina is based on the maximum premiums and deductions at the reference companies, whereas not all dairy farmers of these companies receive these premiums. Apart from this, FrieslandCampina also pays premiums itself, such as for sustainability, VLOG and grazing, to mention a few. By no longer including the deductions and premiums for pasturing, VLOG, sustainability and not milk-related premiums in the calculation of the guaranteed price, FrieslandCampina will make sure that its guaranteed price remains in conformity with the market.

Extra stimulus for sustainable development
In order to stimulate the developments at the farms, FrieslandCampina will annually make available a total amount of 24 million euros in the framework of Foqus planet, the sustainability programme of the cooperative. This consists of a generic company contribution of 0,125 euro per 100 kilos of milk and an amount for sustainable development, which will be established on an annual basis. The company contribution will be paid for the first time in the year 2021 for the results achieved in the year 2020.

Frans Keurentjes, Chairman of Zuivelcoöperatie FrieslandCampina U.A.: “We want the company to remain competitive and sufficiently flexible. For this the guaranteed price must remain in conformity with the market. Heated discussions about the milk price regulations were held in all parts of our cooperative in the past year. This is understandable in view of the current developments. We have been able to pay leading milk prices in the past years and we would like to keep doing this for the coming generations of dairy farmers. The expectations that the dairy farms have to meet with respect to sustainability are increasing. Therefore the company annually makes available an extra contribution of 24 million euros to stimulate the developments at the farms.”

Standard protein, fat and lactose contents updated
The guaranteed price is published per 100 kilos of milk with 3.4 percent protein, 4.41 percent fat and 4.51 percent lactose. These standard contents were established at the time of the merger in 2008 and have not been changed ever since. In the past years, the milk has gradually become richer in proteins and less fat. The lactose contents have increased as well. As a result of this, the difference between the published guaranteed price and the actually paid milk money gradually increased. To set things right, the standard contents will be adjusted to the actually supplied contents in 2019 as from 2020.

Book profit
Another decision that was taken is to include a clause in the milk price regulations stating that if there will be a cumulative book profit of a minimum of 100 million euros in a certain calendar year (for instance because of the sale of one or more company divisions), it may be decided to exclude this amount from the profit distribution. The advantage of this is that this book profit can be directly invested by the company.

The reserve policy of FrieslandCampina will remain unchanged. This means that 35 percent of the nett profit will be subsequently paid in cash to the members. 10 percent will be paid in member bonds and 55 percent will be added to the company’s equity capital.

KoeMonitor a basic requirement for Foqus planet
KoeMonitor will be included in the basic requirements of Foqus planet for all member dairy farms in the Netherlands at the beginning of the year 2020. KoeMonitor consists of three parts, being KoeData [Cow Data], KoeKompas [Cow Compass] and KoeAlert [Cow Alert], and it is the new system for the Dutch dairy industry to assure animal health, animal welfare and food safety of milk. With this dairy companies can demonstrate that the milk supplied by their dairy farmers and processed by them meets the legal requirements of the EU Hygiene Regulation and national laws.

*) FrieslandCampina applies two guaranteed prices: one guaranteed price for regular farms and a guaranteed price for organic and biodynamic farms. In both cases the guaranteed price is the price that the company guarantees to pay its members for the supplied milk. The guaranteed price corresponds with the average prices for farm milk for a number of dairy companies and countries in North-west Europe, including subsequent payment, reservations in name, cooperative premiums and deductions. The guaranteed price is based on public sources and is established independently of the result of FrieslandCampina.