Processing DMK turns out to be an opportunity for Arla

On Wednesday, December 20, DMK and Arla announced that they had signed an agreement for the production of mozzarella. At first glance, a sensible move. This is because with the production of white cheese, whey becomes available again and there is a demand for it. The mozzarella market also offers opportunities, despite the fact that prices have also come under pressure in the winter months.

Similarity more than it seems
The arguments for collaboration are good, but there is more. The collaboration appears to go further than DMK producing cheese for Arla. The Scandinavian cooperative will supply the milk itself that will be processed into cheese. This concerns 300 to 350 million kilos per year. In return, the factory in Nordhackstedt will be renovated so that the production capacity of 70.000 tons will benefit the production of mozzarella.

Of the cheese production, 35.000 tons are intended for Arla. The cooperative will also pay DMK to make the cheese. This is a remarkable move and probably has everything to do with the fact that member dairy farmers left DMK or threatened to do so.

Large volume of milk gone
What's going on? In 2017, DMK already saw 500 million kilos of milk disappear to other processors. Dairy farmers were dissatisfied with the milk price and switched. There is a good chance that from January 1 the volume will decrease somewhat and will increase to 1,2 billion kilos. At the beginning of the fourth quarter, DMK expressed the hope that dairy farmers will reconsider their decision. It was the main reason to keep the milk price high for as long as possible.

Although DMK is the largest supplier of GM-free milk in the European Union (1,8 billion kilos), they introduced an animal welfare and sustainability program with Milkmaster and have a lucrative partnership with Arla in ArNoCo, the loss is a heavy blow. Now Arla cannot fill in the missing volume, but the dairyman can be seen as a savior. 

By moving 300 to 350 million kilos of milk annually to the Nordhackstedt factory, Arla is filling some of the gap that its members created. Good news for DMK, which must ensure that factories remain profitable in 15 more locations in Germany. An additional advantage is that whey production is maintained, which in turn benefits the factory that processes whey in Nordhackstedt and is part of the Arla and DMK collaboration under the name ArNoCo.

Make DMK waterproof again
DMK calls it a reform that ensures that processing takes place more efficiently and makes DMK waterproof. Arla sees mozzarella and whey primarily as an opportunity to add more value to the milk of member dairy farmers.

Arla estimates that the size of the mozzarella market within the borders of the European Union will grow from 600.000 tons in 2017 to 720.000 tons in 2022. Peder Tuborgh, CEO of Arla, indicates that Arla is one of the leading players in the mozzarella market. most important players. "We hope to further expand that position through the agreement with Arla."

The agreement made is good news for Arla, but even better news for DMK and indirectly the dairy farmers who supply DOC Cheese. It gives DMK an opportunity to improve profitability.