On December 18, Benelux dairy groups FrieslandCampina and Milcobel announced their merger plans for next year.
Description of the transaction as a merger between two cooperatives might be accurate; however, it is crucial to note that FrieslandCampina is considerably larger, representing the majority of the combined group’s annual revenue of €14bn ($14.69bn).
Moreover, FrieslandCampina should be the focal point when analyzing the rationale behind this union. The company, ranked as the eighth-largest dairy group globally, has faced several challenges in recent years, making it unsurprising that the Dutch dairy giant is pursuing M&A to enhance its economic standing.
FrieslandCampina reported a loss of €149m in 2023, with operating profit plummeting by over 84% and revenues declining by 7%. Last December, the co-op announced plans to eliminate over 1,800 positions.
In the first half of 2024, there was a noted improvement in profitability (albeit from a significantly lower base), yet revenues continued to decline year-on-year, although at a slower pace than in 2023.
In November, the company announced it would reduce another 180 positions in addition to those addressed a year earlier due to production shifts in the Netherlands.
“The combination of FrieslandCampina and Milcobel is greater than the sum of its parts,” stated Sybren Attema, the chair of FrieslandCampina’s board.
Just Food reached out to FrieslandCampina regarding potential job or facility consolidations due to the merger. However, a spokesperson said, “It is too early to provide a statement about that.”
Conversely, a Milcobel spokesperson clarified, “No, that is not the intention of the merger. Both parties have emphasized that the business case for this merger does not rely on closing locations. Instead, we intend to grow together.”
Both companies are confident that their partnership will enhance their competitiveness in what Attema describes as a “dynamic global dairy market.”
This scenario is not unprecedented. Wednesday marked nearly 16 years since the EU approved the merger between two Dutch dairy groups, Friesland Foods and Campina, which formed FrieslandCampina.
The motivations for that deal were different; however, consolidation in the dairy sector is a recurring theme. As Europe’s dairy market stagnates, it is no surprise that FrieslandCampina is once again exploring M&A opportunities to strengthen its position.
Reportedly, two years ago, the company explored the possibility of merging with European rival Arla Foods. At that time, a spokesperson for Arla dismissed the report as “completely false” and “100% inaccurate.”
Currently, FrieslandCampina and Milcobel are preparing to persuade their co-op members of the merits of the agreed-upon deal.
This transaction, which requires approval from both co-ops’ member farmers and competition officials, highlights the challenges of operating in Europe’s dairy market, particularly amid declining milk volumes, especially in western Europe. Additionally, Milcobel experienced losses in 2023.
“After a decade of growth, milk production in northwestern Europe is projected to decline structurally, impacting dairy companies’ operational and financial performance,” noted Rabobank analyst Richard Scheper in a recent research report.
Factors influencing production include labor shortages, extreme weather, and forthcoming regulations, particularly environmental rules. Scheper elaborated, “Dairy companies face a range of challenges due to structurally declining milk volumes, affecting operational and financial performance. These challenges start with revenue losses and reduced cost efficiency, escalate into increased competition for milk, and culminate in capital implications from excess processing capacity on the balance sheet. For dairy cooperatives, these challenges are even more complex, as lower milk intake often coincides with members’ withdrawal of capital.”
This month, Belgian dairy businesses Vache Bleue Group and Flanders Food Production (FFP) announced their merger, resulting in the formation of the European Dairy Company, which will have a combined annual turnover of approximately €500m ($526.2m).
Given the stagnant prospects for dairy consumption in western Europe, further consolidation within the sector seems inevitable.
