The Netherlands accounts for one quarter of all dairy exports coming out of the EU. It exports 60 per cent of its dairy products (with an export value of €3.8 billion) of which the most important is cheese: over 50 per cent of total milk production in the Netherlands is used to make cheese.
Henk van Bochove is CEO of Netherlands cheese producer De Graafstroom and a former director (for 14 years) of Friesland Foods, a Netherlands-based multinational dairy company. In 2008, Friesland Foods merged with Campina to form FrieslandCampina. In order to obtain EU merger clearance, Campina sold its cheese factory De Graafstroom to DeltaMilk Cooperative, a Dutch cooperative of dairy farmers, in coownership with Henk van Bochove. De Graafstroom is now one of the largest cheese factories in the Netherlands.
How did you reach your current position?
I’ll tell you what the CEO of Westland Kaas, Henk Westland, said to me when he interviewed me for a management job almost 30 years ago. He said: ‘Do you see the tip of this shoe? You get one year and if you do not manage to earn more than you cost in that year, I will use it to kick you out.’ That was the start of my career in the dairy business. I was 25.
Westland Kaas was a Dutch family business, a cheese producer known for brands like Maaslander and Old Amsterdam. We had to set up a whole new sales organisation, first in the Netherlands, later in Germany, France and Belgium.
After Westland Kaas, I moved to Royal Wessanen, in the European organic and natural food market, where I was responsible for the ice-cream business, and from there to Friesland Foods, where I worked for different parts of the business and finally was responsible for the cheese division. Then along came De Graafstroom. By that time I was keen to start my own business. I must say, people who knew about the project warned me at the time. They questioned whether the factory would be viable without the support of Campina. But later they congratulated me. De Graafstroom became a great success: within five months we had the factory completely up and running and working on a standalone basis.
FrieslandCampina has an annual revenue of €11.4 billion. It is one of the world’s five largest dairy companies, ranking only behind Nestle, Danone, Lactalis and Fonterra. How did De Graafstroom differentiate itself in the marketplace?
FrieslandCampina has a different business model from ours. They focus increasingly on their top brands, while we concentrate on private labels. And the retail market has changed as well. These days, retailers focus on ownbrand sales and are keen to differentiate themselves through the quality of these products. Their R&D teams are looking for specific ways in which they can tailor these products to their clients’ needs, and we are just more flexible than the large dairy producers in this respect, partly because of our size. So we can offer specially tailored cheese formulae.
The recent demand in countries like China for infant nutrition from Dutch producers has been huge. How does that affect you?
Whey is required for the preparation of infant nutrition, and this of course is a by-product of cheese. De Graafstroom supplies whey to manufacturers of infant nutrition; we have entered into a long-term agreement with FrieslandCampina for this purpose. FrieslandCampina exports the products to Asia, where they already have a large market share.
The Netherlands is a major player in the production and export of infant nutrition; I believe we are the second largest supplier after the US. We deliver high quality products and are ahead of our competitors in knowledge and technology. The same goes for the US.
Around 80 to 90 per cent of the infant nutrition products coming out of the Netherlands is exported to Asia. The infant nutrition markets in countries like China, Vietnam, Indonesia and Malaysia are growing all the time. Demand for these products is much higher in parts of Asia than it is for example in the Netherlands, where breastfeeding is highly promoted and children switch to ‘regular’ food at a younger age.
Is the Netherlands’ position as a major player in the dairy industry under threat?
The Netherlands was one of the first to use all the by-products of milk. There is so much we can do with milk! Now, the challenge is to remain ahead of our competition. This does not only apply to infant nutrition. In cheese, for example, we are still known for the production of the older cheeses but countries like Germany are gaining ground, especially with regard to the younger cheeses. I am worried about the future of the Dutch dairy business in that sense: it will be tough to retain our position in the market. This is something the Dutch dairy industry as a whole needs to focus on.
There is going to be a shortage in dairy products so this will help the demand for our products stay stable.
Is this shortage a result of population growth in countries like China?
Population growth is just one factor. The shortage in dairy products relates to the growth of the population right across the BRIC countries – in Russia, India, Brazil and China – but it is also affected by the growth in the income of the population. People are willing (and able) to spend more on food for their babies, for example.
If you look at Asia, there is also an increase in the number of livestock but this is growing at a slow pace and won’t meet the increased demand for dairy products in the region.
How can dairy producers stay ahead of the game?
We see companies with different sets of expertise collaborating and forming partnerships to develop new technology. One important focus for a while now has been sustainability. This starts at the farms and runs through the entire dairy chain. Think of, for example, veterinary diseases, animal feed and of course energy reduction. Looking at our own business, we have recently acquired machinery that enables us to extract water from the milk: by doing this, we save about 150 million litres of water that we would otherwise have to obtain from the general water network.
Do you expect the livestock population in Europe to decline if farmers cannot find a successor to take over their business?
The milk market in the EU is currently regulated by a quota system: dairy farmers are allowed to produce up to a specified level of milk and milk fat. As of 2015, however, this system will no longer apply and dairy farmers will, it seems, be free to increase their milk production. Having said that, a new restriction is being introduced to provide for non-intensive livestock and dairy farming: there will be a maximum number of cows per hectare. Nevertheless, I do think that the abolition of the milk quota is going to result in an increase in the production of milk, of at least 10 per cent.
There is also consolidation going on. Farmers who do not find successors will simply be taken over by their competitors – there will be fewer farms but the farms will be much larger.
What will happen to market prices?
The price of milk is currently very high. I don’t think we will drop back any time soon to the very low levels we have seen in the past – but the market is becoming more and more volatile. Obvious factors influencing the market include events like drought in Oceania or trade restrictions in relation to Russia, but there is really much more volatility lately. The prices are largely determined by sentiment. For a business like ours, this requires us to ensure that we enter into the right type of contract.
A growing number of farmers are joining a cooperative. Many Dutch farmers are already members of a cooperative, but those farmers who have been selling their milk through the spot market are, more and more, also tending to join cooperatives. There is a real trend.