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  1. Interviews
November 12, 2014

SIAL 2014: FrieslandCampina navigates challenging year for dairy

With stagnant sales in Europe, the Russian embargo and softer-than-normal demand in China, it has been a challenging year for dairy processors. Dean Best met Cees Ruijgrok, the head of FrieslandCampina's export business, at the SIAL trade show in Paris to take the temperature of the sector.

By Dean Best

With stagnant sales in Europe, the Russian embargo and softer-than-normal demand in China, it has been a challenging year for dairy processors. Dean Best met Cees Ruijgrok, the head of FrieslandCampina’s export business, at the SIAL trade show in Paris to take the temperature of the sector.

Like many of its European peers, Dutch dairy giant FrieslandCampina has not been immune to the impact of Russia’s retaliatory restrictions on EU food products.

“Oh very much,” Cees Ruijgrok, the MD of the co-operative’s export business, replies when just-food asks how affected it has been since the embargo was announced in August.

“We had a large export business to Russia,” Ruijgrok says, noting FrieslandCampina “did about EUR200m (US$249.5m) of sales” to the country. “We are very disappointed that what we call a political problem has backfired on the Dutch farmers. Looking at Europe as a whole, there were about 260-270,000 tonnes of cheese that went to Russia – that cheese is looking for other markets.”

FrieslandCampina has reacted by looking to sell the Russia-bound cheese as a commodity product to industrial customers. The increased supply of cheese on the market has led prices to fall – Ruijgrok says the price of cheeses sold to manufacturers has fallen by 20-25% – making the co-operative’s products more competitive. However, Ruijgrok insists diverting cheese to this part of the market is a short-term measure.

“It’s not a market we are aiming for. We sell good-quality natural cheeses in most markets and all of a sudden you are pushed into the unbranded commodity sector. That is not a good development,” he says. “The commodity pricing game [is] not somewhere we want to be. Our interest is building branded consumer propositions.”

FrieslandCampina has also sought to divert some of its milk into other parts of the dairy sector. It has used more of its milk in milk powder but Ruijgrok points out prices of the ingredient have hardly been healthy this year either.

“A lot of the milk flow was diverted to milk powders. Of course that affected the international milk powder prices. However, prices were already trending down because China took much less than was expected. They were over-stocked at the beginning of the year,” he explains. “In a nutshell, it’s not a very good dairy year.”

Nevertheless, FrieslandCampina has, unlike some of its counterparts in Europe, been able to avoid job cuts in the wake of the Russian embargo. Ruijgrok says the co-op’s “very diversified portfolio” has helped.

“The cheese business is a large business for FrieslandCampina but we have more pillars. We have the ingredients business, we have our infant formula business, which is growing very well. We are one of the few co-operatives that have a large business in Asia, where we have our own factories. Our own milk powder [also] went to the Asian subsidiaries.”

The FrieslandCampina executive describes the past 12 months as “a very difficult year”. However, he points to some positive areas for the world’s fifth-largest dairy company by sales.

“Asia, the US, South America are doing very well,” Ruijgrok says. Africa, he adds, is “coming up”, despite the Ebola crisis “hurting the business in a few pockets”. FrieslandCampina has recently expanded its business in Africa with the acquisition of a plant in Cote d’Ivoire making condensed and evaporated milk from Olam International.

However, it is Asia that seems to enthuse Ruijgrok more. “Africa it is growing – not spectacular like in Asia,” he says.

FrieslandCampina has operations across south-east Asia and it is making moves to expand its existing business in China. Last month, the co-operative finalised plans for an infant formula venture in China with local business Huishan Dairy.

“China is a market where you do not only live off exports, you have to participate in local production,” Ruijgrok reflects. “We have a win-win situation – we have all the technical expertise on baby food manufacturing and branding and Huishan has the upstream context. It’s the perfect fit for us.”

FrieslandCampina has been facing some challenging conditions in its home market of Europe with demand for daily slowing. Consequently, the co-op has been looking to reshape its business in the region; last month, it made two announcements – with a plan to close a plant in Belgium but also deals to buy two Italian cheese firms. Ruijgrok says the acquisitions were made to “strengthen our positions in certain pockets, growth areas or areas where we expect to have a bright future”.

FrieslandCampina looks to right-size its businesses within Europe, the co-op – along with the rest of the dairy sector – is preparing for the end of EU quotas on dairy production next April. The prospect of more milk on the market does not faze Ruijgrok, who, for all the problems with Russia and inventories in China, is upbeat about the medium-term prospects for the sector.

“If you look at the projected growth of dairy consumption, I think dairy still has a very bright outlook. Of course you have hiccups in certain countries but if you look at the total picture, dairy consumption is going to grow,” Ruijgrok says.

He points to FrieslandCampina’s “route2020” strategy, announced in 2010 after the merger between the then Friesland Foods and Campina, which sets out how the co-operative believes it can grow.

“Geographic expansion is one of the pillars. Building out further our ingredient division, too. What most people don’t know is that we are a larger supplier to basically all the big baby food brands. We also think we have a lot of potential with the cheese business. Even though it looks a bit problematic at the moment, that will recover. It may take some time but suppose the Russian market opens again and China has destocked, you see a completely different game again. It will not stay like this. No, I think we can be quite positive about the future. In dairy, it always goes in cycles. I’ve seen it happen in the last 30 years.”

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