Campina profits from added-value, but private label slips

Veghel-based Campina announced last week that net sales had fallen 2.7 per cent from €3.67 billion on the previous year to €3.56 billion in 2004, stemming from increased competition across its core operating markets of Germany and the Netherlands, together with flagging demand for private label dairy products in Western Europe.

According to the dairy co-operative, the consumption of the basic dairy categories - referring to milk, yoghurt and custard - has been falling gradually for some time. Its German and Dutch divisions, which each notched up total annual sales of €909 and €702 million respectively, were both left reeling from the largest sales declines across the group (in Germany sales fell 2.2 percent, the Netherlands 10.8 per cent).

"Basic dairy is produced under private labels at the lowest possible cost. However, the return on these products continues to give cause for concern,"​ Campina warned.

Campina's cautionary tone clearly underlines a willingness to move away from margin-squeezing commoditisation into the more lucrative area of added-value - something that has produced considerable success for a handful of international dairy firms (New Zealand's Fonterra, for instance).

But while private label sales flagged in 2004 (particularly fresh milk), Campina's key consumer product brands including Campina, Landliebe and Mona bolstered their share of Campina's total turnover from 36 per cent in 2003 to 42 per cent last year.

Conversely, compatriot Dutch dairy rival Friesland Foods (which similarly posted disappointing results last week) begged to differ - claiming that declining sales across its key branded product line-up were in fact a result of the burgeoning popularity of private label dairy.

But for the time being, added value appears to be the only way of upping profit margins for the world's biggest dairy players - particularly considering the current volatile state of the European milk sector.

Both Campina and Friesland also blamed continuing price skirmishes across the Dutch multiples - operated by Ahold and Lauhrus - in contributing to a decline in profits. Campina, for example, saw its net operating profit plunge from €34.6 million in 2003 to €17.1 million in 2004.

Already the dairy co-operative has brought about a number of operational changes in a bid to claw back a figure of approximately €35 million through subsequent cost savings - something which it warns will lead to a loss of jobs in "indirect functions"​ in the next couple of years.

Furthermore, in an attempt to appease its already pressurised member-farmers, Campina commented that although it had slashed its milk cash price payout by around €0.76 per 100kg of milk on the previous year (a fall in performance price from last year's €34.56 to €33.39 in 2004), an EU compensation payout of €1.18 had largely helped offset the decrease.

For its 7,000 member-farmers, however, the outlook for 2005 remains plagued with uncertainty. The EU's far-reaching CAP reforms are set to drive down milk prices by 20 per cent in the years to 2008, while farmers' incomes will largely depend on Campina's ability to improve its commercial results.

Meanwhile, the dairy co-operative has announced it is to enter into a 50/50 agreement with Vietnam's largest dairy company, Vinamilk. The new venture, to be called the Campina Joint Venture Company, will focus on the value-added segment of the Vietnamese market - yoghurts, dairy drinks and desserts - which will be marketed under the Dutch company's brand.

The Vinamilk deal is the latest in a string of acquisitions aimed at consolidating Campina's presence across Asia. In spring last year last year the co-operative acquired Parmalat's activities in Thailand and it already has a Vietnamese presence through its Ho Chi Minh City organisation, which focuses on the marketing and sale of long-life milk and also a number of Campina-branded products.