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Arla Turns Up Investments to Boost Profitability

31 January 2017

GLOBAL - In 2017 Arla expects to invest €335 million in its production sites around the world to support its Strategy 2020 by moving more milk from bulk into branded retail sales and foodservice. The investment is nearly a 50 per cent increase compared to last year's plan and one of the highest ever single-year supply chain investment forecasts in company history.

With an ambition to expand production of branded high-quality products for Europe and emerging markets, Arla has announced a new investment plan for the coming year. Recently approved by the board of directors, the plan contains investments of up to €335 million in 2017 (compared to €227 millionin 2016).

Most of the investments focus on production upgrades that will increase profitability of products sold on core markets like Germany, UK, Denmark, Sweden, the Netherlands and Finland as well as on production sites that supply high-quality dairy products to Arla’s emerging markets outside the EU.

“With these investments we continue our relentless pursuit of the goals in our Strategy 2020 to move more milk from bulk into brands and improve the profitability for our farmer-owners. You will see Arla take an even stronger position in the market as the innovative farmer-owned dairy company, providing great-tasting, natural dairy products that help people make good food choices. That is the main focus of these investments,” says Arla CEO Peder Tuborgh.

Taking mozzarella to new heights

Towards 2020, Arla expects 50 per cent of its growth to come from Europe with the other 50 per cent come from emerging markets outside Europe, where Arla’s strategic focus is especially on the regions Middle East and North Africa, China and Southeast Asia, Sub-Saharan Africa, and the US.

An important bet in Arla’s ‘Good Growth 2020’ strategy is to grow foodservice sales significantly by 2020. Consequently, around €18 million of this year’s investments will go into expanding and developing Arla’s production for foodservice customers.

One such investment is €13 million for Rødkærsbro dairy in Denmark, which is one of the leading mozzarella sites in the world. By investing in new world-class technology, Arla will be able to take the product quality to new heights as well as expand the site’s production of mozzarella for the international pizza industry.

A world leader in whey protein and lactose

The site Denmark Protein near Videbæk, Denmark which produces protein, lactose and other highly value-added whey-based ingredients for the global food industry, is the Arla site on the receiving end of the biggest total investment amount in 2017 with approx. €30.6 million.

The money will be spent on general upgrade and expansion of production facilities, including improvements of the sites protein and lactose processing.

“One of the ambitions in our Strategy 2020 is to be a global leader in natural whey ingredients for food producers in a range of categories – from bakery, beverages, dairy and ice cream to medical, infant and sports nutrition. The investment in our Denmark Protein site is key to meeting that ambition and it will help us build on an already strong and profitable part of Arla’s business,” says vice-CEO and executive vice president of Arla’s supply chain, Povl Krogsgaard.

New packaging for spreadable cheese

Spreadable cheese and cream cheese is a product category of high strategic priority for Arla. The company aims to build on its already strong market positions in this category in Northern Europe, Middle East and the US and is now ready to invest over €12 million in its key cream cheese dairy site in Holstebro, Denmark to introduce new, innovative packaging designs that will give products an edge on the supermarket shelf.

“We are now stepping up our sales ambitions for spreadable cheese and cream cheese both in Europe and in our emerging markets, where more consumers look for products containing natural ingredients. Combining clean-label with good taste, Arla® and Puck® spreadable cheeses and cream cheeses meet the growing demand from consumers. More than ever before, having the right, unique packaging is a key driver to differentiate on shelf in this category, so we are now investing to rebuild our processing, filling and packaging lines at Holstebro Cream Cheese as well as our storage capacity,” says Povl Krogsgaard.

Phase one of this project is expected to be completed by the end of 2017, with phase two to follow in 2018.

Investing in better energy efficiency

Across all sites, €22 million will be spent on continued rationalization of production as part of Arla’s ongoing commitment to keeping operational cost low.

“Arla already runs one of the most efficient supply chains in our industry, and every year we find new ways to make our production sites even more efficient as we work to establish one European milk pool to ensure a more holistic use of our milk across the Arla group. Overall, we have set an ambitious cost improvement target of EUR 400 million to be reached by the end of 2019. This is done to secure the highest value for our farmers' milk while creating opportunities for their growth,” says Povl Krogsgaard.

The 2017 investment forecast also includes 150 projects at a total investment of about €5 million aimed at improving Arla’s energy efficiency.

Arla’s annual investment forecast has been confirmed and approved by the Board of Directors, consisting of elected farmer-owners and employee representatives.

Facts - Arla’s annual supply chain investment forecasts in recent years:

2012 – 240 million euro
2013 – 277
2014 – 293
2015 – 210
2016 – 228
2017 – 335

TheCattleSite News Desk

Top image via Shutterstock



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