Prices for raw milk have been under pressure in Germany, Denmark and the Netherlands in recent months. This is reflected in the first guaranteed price announced by FrieslandCampina for the month of January 2009. The guaranteed price is the price that we guarantee our member dairy farmers for the milk they supply in January 2009. It is independent of FrieslandCampina’s results. FrieslandCampina’s guaranteed price for January is EUR 28.75 per 100 kilograms of milk, exclusive of VAT. This is EUR 1.50 per 100 kilo milk lower than the indication would have been for the guaranteed price in December 2008.
The guaranteed price is the price for 100 kilograms of raw milk containing 4.41% fat and 3.47% protein, exclusive of VAT. The guaranteed price does not include the effects of additional payments or charges, such as the quantum supplement or seasonal additional payments and charges.
FrieslandCampina guaranteed price (in EUR, exclusive of VAT)
|per 100 kilo milk1)||per kilo fat2)||per kilo protein3)|
1) In euros per 100 kilograms of milk with 4.41% fat and 3.47% protein. This price does not include additional charges or payments.
2) This price applies for members in the Netherlands
3) This price applies for members in the Netherlands. This price does not include additional charges or payments.
4) Indicative. The final 2008 guaranteed price 2008, will be published with our annual figures 2008
Calculation of guaranteed price
We base the guaranteed price on the average ZMP milk price for Germany, the milk price of Arla Foods in Denmark, the milk prices of Bel Leerdammer, Cono Kaasmakers and DOC Kaas in the Netherlands and the milk price of Milcobel in Belgium. These prices for raw milk are representative for the country concerned.
In order to calculate the FrieslandCampina guaranteed price, we weight these milk prices for the volume of milk processed in the entire country in question. In total, this involves about 45 billion kilograms of milk.
We base these calculations on the performance of recent months and the expectations for performance in the coming months on the basis of price movements in the dairy market. Prices for raw milk have fallen in recent months, particularly in Germany, Denmark and the Netherlands, and various parties in these countries have announced that further price reductions for raw milk are in the pipeline. In many cases, raw milk prices have now fallen to the levels of early 2006.
FrieslandCampina milk price consists of the guaranteed price and the performance payment
The milk price that FrieslandCampina pays its member dairy farmers consists of the guaranteed price and the annual performance payment. Unlike the guaranteed price, the performance payment does depend on the financial results of the FrieslandCampina company and the approved reservation policy. In principle, we pay out 25% of the company’s net profit in cash to the members as the performance payment, based on the guaranteed price and after deduction of the payments on member certificates and bonds. The performance payment is paid out annually, in proportion to the value of the milk delivered, following approval of the financial statements.
Cash payments to individual farmers
On the basis of the guaranteed price for January, a FrieslandCampina dairy farmer delivering 500,000 kilograms of milk per year will receive a cash payment of EUR 28.06 per 100 kilograms of milk in the first month of 2009. The difference with the guaranteed price of EUR 28.75 is explained by the total of additional charges and payments for a dairy farmer supplying 500,000 kilograms of milk per year, which is negative in January 2009.
On the basis of the monthly cash payments, we will compare prices at the end of each month. This will take place, for instance, on the milk statements of the individual dairy farmers.
The precise outcome for individual German member dairy farmers will become apparent around the end of each month, when the average fat and protein content and the milk deliveries for the relevant month are known. This information is needed in order to calculate the basic price and the fat and protein prices in Germany.
Difference between Friesland Foods and Campina prices for December
The calculation of the guaranteed price differs from the way in which Friesland Foods and Campina fixed and published their advance milk payments in the past. As a result, the advance milk payments made by Friesland Foods and Campina for December 2008 are not comparable with the FrieslandCampina guaranteed prices for December 2008 and January 2009.
In case the Friesland Foods or Campina way of calculating milk prices would have been continued during 2009, this would have resulted in a January 2009 milk price which would have been considerably lower than in December 2008 and January 2008, reflecting the developments on international markets.