Arla warns prices will rise further

Dairy cooperative Arla Foods said on Tuesday significant price increases had boosted sales in the first six months of the year but warned that consumers would spend less as prices are expected to rise further.

Arla, owned by more than 9,400 farmers in Denmark, Britain, Sweden, Germany, Belgium, Luxemburg and the Netherlands, said sales between January and June rose 17 per cent from a year earlier to €6.38 billion (£5.48bn.

The rise was driven by “significant price increases” in Arla’s retail and food service and commodity trading business, even as volumes declined.

The Denmark-based cooperative said higher prices would not lead to increased production due to higher costs on the farm, with the price of fertiliser up by 145 per cent, fuel by 134 per cent and cow feed by 36 per cent.

“With on-going inflationary pressure and political unrest negatively impacting global growth, Arla expects the second half of 2022 to be even more challenging as the global milk production is expected to decline further and contribute to sustained high dairy prices, which will likely further diminish consumer confidence and consumption,” the company said in a statement.

Arla Foods UK reported a net revenue of £1.15bn in the first half 2022, a growth of 8.3 per cent vs the same period in 2021, driven by prices increases in Arla’s retail and foodservice divisions.

However, the company noted that the farm inflation has seen total costs increase around 51 per cent in the UK since the start of 2021, with feed prices increasing around 73 per cent.

“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,” Ash Amirahmadi, managing director of Arla Foods UK, commented.

“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. 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 per cent 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 per cent decline year on year, while the Starbucks brand continued to deliver a strong performance with growth of over 19 per cent, driven by growing in-home and on-the-go consumption.

Following a rise in baking and in-home consumption which peaked during lockdown, Lurpak butter has seen a 15.4 per cent fall in the first half of the year as usage occasions return to pre-pandemic levels. In the yogurt category, the Arla Protein brand delivered a 58.4 per cent growth increase.

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