Murray Goulburn was on the right track in developing value-added brands, the former head of one of the world's largest co-operatives told the Australian Dairy Conference in Adelaide in February.
But the pace with which Murray Goulburn went about changing was "over challenging or over demanding" for it, Piet Boer, who was chair of Dutch co-operative FrieslandCampina from 2011 to 2016, said.
Mr Boer said it was vital for any co-operative to communicate their strategy to farmers.
Farmers needed to understand the strategy so that when setbacks occurred - and they would occur - they remained committed to the plan. "You have to have lasting strategy for more than three years; you have to pull that through for more 10 years," Mr Boer said.
One of the keys to FrieslandCampina's success had been its structure that meant a set amount of the company's profits were reinvested into it.
These reserves had enabled the company to invest in brands, which were the key to taking a higher percentage of profits available in the market.
"The biggest percentage of profit is closest to the consumer," he said. "If we must share the profit, we want to get closer to the consumer with brands. And Asian consumers like brands more than European consumers."
Mr Boer said supermarket brands were a challenge for FrieslandCampina in some of its markets, particularly Germany.
FrieslandCampina's strategy had been to develop and promote its brands, looking to differentiate its products from the supermarket brands. "But it is a tough fight," he said.
But it was also important to try to work with the supermarkets. "Our farmers tend to see them as our enemies," he said. "That's the worst position you can take. Never see them as your enemy; you need them. Sometimes it's challenging."
Mr Boer suggested a dairy processor in a market already dominated by supermarket brands might be able to build a brand in one category "and for rest be as efficient as possible on retail brands".
"And sit together with the retailer and say 'OK what can we as partners develop'," he said. Becoming a preferred supplier for the supermarket brand carried some risk in that others could also supply the product, but it also meant the processor had a lower investment cost and, if something went wrong, the processor's costs were not as high.
Mr Boer said the world market was critical for Europe, even though most of its production was destined for its domestic markets. "Whether we export a lot or export a little, we are influenced by the world market," he said.
The three major influences on the world market were:
- Economics - for example, exchange rates and fluctuating supply and demand.
- Politics - for example, quotas or Russian sanctions.
- Climate - for El Nino or La Nina weather patterns.
He said the removal of quotas in Europe in 2015 had not had as big an impact as some had expected. This was because the removal of price supports, including import subsidies, in 2007 had already had a major impact on the European dairy market.
Before 2007 prices and production in Europe had been relatively stable, but since 2007 both had moved up and down.
The formation of FrieslandCampina from the two smaller co-operatives was driven by the removal of the price supports and the likely removal of quotas.
Mr Boer said European Union milk production will not increase that quickly or by huge amounts - 1-2 per cent per year would be the maximum.
In the Netherlands new environmental laws that limit the amount of manure that could be applied to land would restrict production. "It will hamper any increase for years," he said. "The EC will control cow numbers."
Consumer expectations were a major challenge, particularly in a country the size of the Netherlands that was essentially a "city state".
"Sustainability is a topic that is on top of our minds," he said.
