Arla Foods, the European dairy cooperative, grew its revenues by 23.2% last year to €13.8 billion, according to its latest financial results published today (Thursday, February 9).
Arla attributed the jump in revenues from €11.2 billion in 2021 to €13.8 billion last year as “almost exclusively driven by increased prices”.
The co-op is owned by more than 8,900 farmers from Denmark, Sweden, the UK, Germany, Belgium, Luxembourg and the Netherlands.
Arla highlighted in its 2022 annual report that despite a volatile 12 months, it had delivered a “strong performance” which in turn had enabled it to a provide a “significant increase in its prepaid milk price” including an “above target supplementary payment” to its farmer owners of 2.2c/kg milk for the full year.
Arla’s average pre-paid milk price increased by 40.5% from 37c/kg in 2021 to 52c/kg in 2022.
The latest set of financial accounts show that Arla’s performance price – which measures the value the co-op adds to each kg of its owners’ milk – was 55.1c/kg last year which represented a 38.8% increase on 2021 prices.
Arla accounts
But the accounts also detail that the net profit allocated to the co-op’s farmer owners of €382 million, equivalent to 2.8% of revenue, was at the “bottom end of its target range of 2.8-3.2%”.
Despite this, Arla’s board of directors proposed a supplementary payment, including interest on contributed capital, to farmers of 2.2c/kg of milk delivered which was paid out for the first time in September 2022 with another payment scheduled for next month.
According to Arla Foods’ chairman, Jan Toft Norgaard, 2022 was a year dominated by inflation and uncertainty for both farmers and for the group.
However he said against the backdrop of a “challenging environment”, Arla Foods had delivered “solid results”.
“As a cooperative, we took an historic step in 2022 with the decision to introduce a sustainability incentive that ties the individual farmer’s milk price to sustainability activities and performance.
“A total of up to €500 million will be redistributed every year, showing our ambition to be at the forefront of progressive dairy farming,” he added.
Sustainability
The group further detailed in the latest annual report that Arla’s emissions programme had “delivered the expected reductions in 2022”.
Arla Foods chief executive, Peder Tuborgh, said:
“In the past few years, we have accelerated our sustainability action to reach our target scope 3 CO2e [carbon dioxide equivalent] emissions reduction by 2030.
“After a flat development in the past four years, Arla farmers have resumed their reductions as they managed to lower scope 3 emissions by two percentage points in 2022 and in total by 9% compared to our 2015 baseline.”
Arla, whose well known brands include Lurpak, Puck and Castello, said strong global industry sales and higher returns during 2022 had helped offset the pressures that its farmers had faced due to soaring production costs primarily driven by feed, fertiliser and energy prices.
But it has warned that 2023 will be “another difficult year”.
Tuborgh, said commodity prices had sharply declined during the fourth quarter of 2022 and the cost of living crisis had also impacted the group across the world.
According to Arla, by the end of 2022, European dairy category demand was down by around 5% compared to the same time in 2021.
“We expect a further decrease on the commodity markets in 2023. We also expect to see a continued slow-down in branded growth due to reduced buying power of consumers and fear of recession,” the Arla CEO warned.
He said this will have a knock-on impact on milk prices to farmers and that there will likely be “some reductions” up until the summer.
“This is driven by supply and demand that goes for all foods and hundreds of other companies in our sector in Europe; we are all following the same trend at the moment and where you can see it most dramatically is in the commodity market which has reduced and of course that impacts the milk price.
“We are talking and preparing our farmers for a very different year in 2023 compared to 2022 but the very, very super high milk prices that we have seen in 2022 will not be seen in 2023 and that goes for all dairy companies,” Tuborgh cautioned.
