The maker of Anchor and Lurpak butter admitted that the spiral downwards in world dairy prices had impacted its revenues, profits and “performance price” – the latter what it earns on each kilogram of milk produced.
Arla Foods said in its trading statement: “Globally declining milk prices impacted Arla Foods and the entire dairy industry in the first half of 2015, creating a tough situation for Arla’s farmer-owners.”
The group’s profits slid 21 per cent to €116 million (£84.5m) in the first six months of 2015 on revenues down 3.8 per cent at €5.13 billion.
That compared with a profit of €147m on revenues of €5.33bn in the corresponding period last year. Arla’s performance price in the latest period fell to 33.8 euro cents per kg of milk, from 41.7 euro cents last time.
Arla Foods UK, the country’s biggest dairy co-operative, said: “The global market prices have been under heavy pressure since last year as China’s import of commodity products turned stagnant and Russia introduced an embargo on EU dairy products. At the same time, European milk production has increased after the abolition of the EU milk quotas on 1 April, and production has also gone up in New Zealand and the United States.”
The company said the global market commodity price for whole milk powder had slumped 53 per cent since the start of 2014 to price levels last seen in 2009.
“Consequently, the challenges in the first half of 2015 were expected, however the global price levels have dropped to an unforeseen low,” yesterday’s statement added.
Arla Foods said that it had tried to mitigate the worst effects of the downturn by channelling increasing milk volumes into retail and branded products, and away from “less profitable commodity products”.
The company said it had also cut investment by 30 per cent, and was on track to gain €330m of efficiency savings before the end of this year compared with 2012.
Peder Tuborgh, chief executive officer of Arla Foods, said: “We are doing everything we can to minimise the effects of the global market situation. However, it cannot change the fact that our farmer owners are in a tough situation right now.”
Tuborgh said 2015 had proved to be “a very challenging year indeed”, and that current earnings did not cover the costs of milk production.
Last month the group made a price cut in the UK of 0.8p per litre of milk, taking the standard price to 23.01p. With the industry estimating production costs at up to 32p, farmers are said to be losing almost 10p per litre.
Arla’s chief executive said a key strategy was to drive growth outside the company’s European core markets.
Tuborgh added that branded sales in China would double this year, while it was getting volume-driven revenue growth of 15 per cent in Africa and the Middle East.
Arla said that revenues for the full year were expected to reach between €10.2bn and €10.3bn. Arla Foods UK is home to brands including Anchor, Cravendale and Lactofree. It has a turnover of about £2.3bn, and is the UK’s biggest cheese maker.
The company has also built the world’s largest fresh milk facility, located at Aylesbury in Buckinghamshire, and said it plans for it to become a zero carbon-producing site.