Arla Foods has today (Friday, October 7) announced that it will start paying its farmer milk suppliers for sustainability activities they undertake.
Through its new points-based Sustainability Incentive, the co-op will pay up to 3c/kg of milk per point earned via sustainability activities, in addition to the existing 1c for submitting Climate Check data.
Based on the cooperative’s current milk volume, this corresponds to a total of up to €500 million extra paid annually.
The first incentive payment will be paid out as part of the monthly milk price in August 2023, based on milk delivered in July. It will be calculated based on the data available from the 2022 Climate Checks and any additional documentation that the farmer has uploaded, e.g. a purchase agreement for renewable electricity or deforestation free soya.
While it is voluntary if a farmer wants to go for the incentive or not, the co-op notes that 95% of Arla’s farmers, representing 99% of Arla’s owner milk pool, have already registered their data in the 2022 Climate Check.
Their points on some of the levers in the Sustainability Incentive model will therefore automatically be calculated and rewarded.
Arla’s chairman, Jan Toft Norgaard said: “The Sustainability Incentive model is a historical milestone in Arla’s transition to more sustainable dairy.
“We are introducing an advanced and ambitious sustainability incentive, which is a fundamental change to our milk price model.
“Going forward, the milk price Arla farmers will receive for their milk will not only depend on fat, protein and quality, it will also depend on their activities on sustainability.”
Norgaard said that the incentive would ultimately aid the dairy sector in becoming more progressive, and would “set the standard for how to push our whole sector forward”.
“The Sustainability Incentive will be an effective tool for driving further improvements,” added Arla group CEO Peter Tuborgh.
“Arla has some of the most climate-efficient farmers in the world, however, they also recognise that they need to accelerate their efforts to be at the forefront of environmentally sustainable dairy.”
The points-based system
The new model is a points-based system, in which the farmers can collect points based on their activities on the model’s 19 different levers.
They include feed; protein and fertiliser; efficiency; manure delivery to biogas; biodiversity; carbon farming; and use of renewable electricity and deforestation-free soya.
As mentioned, each point that the farmer achieves, depending on his/her level of environmental sustainability activities, will trigger €0.03/kg of milk. The levers with the biggest impact potential will trigger most points.
From the beginning of 2023, 80 points will be available, and a further 20 points for new levers are expected to be built into the model within a few years, leading to a total of 100 points.
For each point that the farmers are able to achieve, they will receive €0.03/kg of milk.
Activities with bigger improvement potential for climate and nature will lead to the most points – and therefore also the biggest financial incentive.
In the first full year, at least €270 million is expected to be distributed through the monthly milk price based on what the farmers are doing on the 19 levers.
For an average Arla farmer, with an average annual milk production of 1.2 million kg, it means that approximately €26,000 of the milk price is achieved based on their activities related to environmental sustainability.
