Merger of FrieslandCampina and Milcobel momentous and necessary

A momentous event, but not a miracle cure. Rather, a sort of necessary step. This is how credit rating agencies Fitch and also Standard & Poors view the merger between FrieslandCampina and Milcobel. Financially, the performance of the merged company is expected to initially suffer slightly, according to Fitch's assessment. Member dairy farmers may feel differently, but they might be able to follow Fitch's analysis well. Although revenue will receive a boost of about 12%, Milcobel's margin contribution is relatively low, the Fitch analysts write in their report dated November. Therefore, profits will initially decline. For results development, the recent acquisition of Wisconsin Whey Protein is a much more promising development, provided that not too much money was paid for it. Calm and direction FrieslandCampina has had a number of challenging years. There has been significant reorganization, parts have been divested, and the course has been redirected several times, but compared to competitors, it has fallen behind in recent years. Competitors like Arla, Lactalis, Müller, and closer to home A-ware have performed better. With Sybren Attema as chairman and now Jan Derck van Karnebeek as CEO, the company seems to have found itself in better waters again. There is at least more stability, everyone seems to be pointing in the same direction, and more actions are being taken instead of just financial maneuvering. Securing supply The merger with Milcobel primarily helps to secure the supply base and maintain scale, however strange that may sound at a time when the availability of milk is more of a burden than a pleasure. The latter is, however, a short-term problem. Structurally speaking, it is to be expected that milk supply will decrease, particularly in Northwest Europe. Restrictions on agriculture, low valuation for farmers, a declining number of farms, and high production costs are the causes. Therefore, Milcobel is truly an asset, even though FrieslandCampina initially looked for larger partners. There are no longer too many opportunities to suddenly acquire a significant number of suppliers at once. From divesting to attracting For some dairy farmers, particularly in Belgium, this may feel bittersweet, although the (hopefully for them) higher milk price after the merger makes a lot right. Because just ten years ago, FrieslandCampina was trying to get rid of a whole group of Belgian suppliers. FrieslandCampina Belgium had to reorganize and attempted to 'sell' over 440 farmers to Milcobel. Milcobel was interested, but the farmers themselves were not all pleased. A large group left for other processors. When FrieslandCampina sold its powder production in Aalter to A-ware in 2020 and began recruiting dairy farmers, it was still able to benefit from the disappointment among many Flemish farmers in FrieslandCampina. Meanwhile, the situation has turned nearly 180 degrees. FrieslandCampina has reopened its doors wide. High-protein trend Milcobel also offers more than just milk. The cheese production, and actually especially the whey production, is also a nice asset, although there is still some competition with Arla, it can be assumed. After all, much of Milcobel's whey currently goes to this company. Whey is (again) the new gold of dairy, although this product has also been the basis of the earlier success of baby food at FrieslandCampina. It is now primarily the high-protein trend that makes whey in demand. However, cheese whey must first be concentrated and upgraded to whey protein concentrate (WPC) and whey protein isolate (WPI). WPC80 currently sells for between €13,000 and €14,000 per ton, while WPI90 – depending on the precise specifications – can exceed €24,000 per ton. These WPCs and WPIs are used in sports nutrition, medical nutrition, and nutrition for special target groups, like the elderly. They also play an important role in the diets of people using medication to lose weight. Closing the gap With Milcobel and Wisconsin Whey Proteins on board, FrieslandCampina can make strides in the whey market and catch up on competitors like Arla. In the meantime, FrieslandCampina is more than just whey. The company is still strong in cheese itself but is also very strong in baby food and various dairy products in Asian, Arab, and African markets. However, with 'white' dairy in Europe, it is less strong than, again, Arla. The new dynamics at FrieslandCampina, however, also create new opportunities and new goals. In this respect, the merger with Milcobel can be a good stepping stone. This is also good for the member dairy farmers, although it is expected that the Milcobel members will initially benefit the most. Their old cooperative has been performing poorly for some time. The FrieslandCampina members must view the merger’s profit in the long term.