Arla expects more challenging times with global milk production to decline

30-Aug-2022 - Last updated on 31-Aug-2022 at 10:42 GMT

The dairy co-operative is expecting further challenges for the rest of 2022

Ongoing inflationary pressure and political unrest are expected to negatively impact global growth in the rest of 2022, Arla Foods has revealed.

The dairy co-operative said that it expects the second half of 2022 to be “even more” challenging as global milk production is expected to decline further and contribute to sustained high dairy prices. It said this would be likely further diminish consumer confidence and consumption.

The news comes as Arla Foods revealed it would make its first ever half year supplementary payment to its farmers owners. In line with its new retainment policy, the co-operative is to pay an additional 1 EURcent per kg of milk (0.85 ppkg) to all owners across Europe.

Inflationary pressures

It said the first half of 2022 was dominated by inflationary pressures across all areas of the supply chain. Net revenue for Arla Foods UK in the first half 2022 hit £1.15bn (€1.4bn), a growth of 8.3% vs the same period in 2021. The growth was driven by price increases in Arla’s retail and foodservice divisions, it said.

Arla Foods also revealed that costs increased significantly across the supply chain on utilities, packaging and transportation, at both a total group level and in the UK.

Ash Amirahmadi, managing director of Arla Foods UK, said: “We are facing extraordinary times in food production as both our farmers and the company face high levels of exposure to inflationary pressures and costs increasing right across the supply chain.

Reduced milk volumes

“We are now seeing the impact of these rising costs in reduced milk volumes. This presents a significant challenge in balancing the price consumers pay with the need to ensure our farmers are paid enough to continue producing milk and protect security of supply. As consumers are trying to manage household budgets, we are doing all we can to absorb as much of the costs as possible to ensure dairy remains an accessible source of food.”

But he added that the “unprecedented volatility” and cost rises at at both farm and business level mean that consequently its customers had to increase retail prices.

Ceo of Arla Foods, Peder Tuborgh added: “2022 continues to be characterized by volatility and inflation, exacerbated by Russia’s invasion of Ukraine. Changes in consumer behaviour continue to be multifaceted and difficult to predict and we expect our branded growth will slow down further.”