12 September 2022

3 minute read

Europe

According to a news release from the UK's Arla Foods, the company will make its first ever half year supplementary payment to its farmers owners. In line with its new retainment policy, the cooperative will pay an additional €0.01 cent per kg of milk (0.85 ppkg) to all owners across Europe.

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 is £1.15bn (€1.4bn), a growth of 8.3% vs the same period in 2021. The growth is driven by price increases in Arla’s retail and foodservice divisions, necessary to support famers with the on-farm cost challenges. As a result, Arla was able to increase its pre-paid milk price by over 30% to its farmer owners. As the cost of production rises, on-farm inflation has seen total costs increase around 51% in the UK since the start of 2021, with feed prices increasing around 73%.

During the first half of 2022, Arla Foods costs increased significantly across the supply chain on utilities, packaging and transportation, at both a total Group level and in the UK.

“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," said Ash Amirahmadi, managing director of Arla Foods UK.

“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," he said. "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. However the unprecedented volatility and cost rises we are seeing at both farm and business level mean that consequently our customers have also determined to increase their retail prices.”

Total Strategic Branded Revenue Growth (SBRG) across the UK fell 6.3% in the first half of 2022, as consumers’ shopping habits change and stabilise following two years of significant growth, driven by in-home consumption during Covid. Total Arla Brands delivered a 4.5% decline vs the same period last year, while the Starbucks brand continued to deliver a strong performance with growth of over 19%, driven by growing in-home and on-the-go consumption.

Following a rise in baking and in-home consumption which peaked during lockdown, Lurpak has seen a 15.4% fall in the first half of the year as usage occasions return to pre-pandemic levels, but remains category leader as butter continues to be a key staple in the home. In the yogurt category, the Arla Protein brand delivered a 58.4% growth increase, driven by consumer demand for protein products, a strong mix of formats and the brand’s ability to tap into a younger audience demographic.

Arla’s Foodservice business continued to bounce back from the impacts of Covid and lockdown with a growth of 21.6% as people return to eating out of the home.