An unusual structure, in which a farmer co-operative owned the company that processed its members' milk, was one of the keys to its success, the former chair of Dutch co-operative FrieslandCampina Piet Boer told the Australian Dairy Conference in February.
FrieslandCampina, which has 19,000 members, was formed in 2007 with the merger of two smaller co-operatives.
Mr Boer said its structure was different from that seen in anglo countries. Suppliers did not buy shares in the co-op, rather they paid 15 cents a kilogram to join, which went into the company reserves. The supplier could not retrieve that amount if they left the co-op.
Unlike some other European processors, FrieslandCampina pays its suppliers a guaranteed price based on the average annual prices for raw milk of benchmark companies in Germany, Denmark, the Netherlands and Belgium. Every month, the guaranteed price is estimated based on the trend in the published milk prices of the benchmark companies. This price fluctuates but the way in which it is calculated was set for three years.
Mr Boer said this arrangement had allowed FrieslandCampina to move away from always arguing with its suppliers about the milk price. "There is always a pressure to pay out more," he said. "And there is always 'the weather is bad' and 'there is more costs' and 'there is a higher cost of production' and that's why farmer members say 'hey you don't pay enough, you have to pay more' and there is a lot of debate about how to divide the profits of the company."
But a co-operative needed to be able to invest to ensure long-term profitability. Co-ops that did not invest eventually finished up operating in only the commodities market, which had lower prices that fluctuated more.
So FrieslandCampina puts 45 per cent of all profit (after paying its members for their milk) into its reserves. In addition to the milk price, FrieslandCampina pays its member dairyfarmers 35 per cent of the company profit as a performance premium and 20 per cent as fixed-interest-bearing interest bonds, proportionate to the volume of milk they have supplied.
Under FrieslandCampina's structure, the farmer co-operative had representative district and members councils and a board.
The co-operative fully owned a company that had a separate skills-based executive board, which had no farmer members. The executive board members were appointed by a supervisory board, which comprised the co-op board plus four external members.
The executive board was responsible for running the company. This helped avoid any conflicts of interest that farmer board members might have when making decisions about the company direction, Mr Boer said.
