Arla makes semi-annual supplementary payment on milk price

The cooperative dairy group Arla Foods makes a supplementary payment for the past six months for the affiliated member dairy farmers. It is the first time that the Scandinavian company does this. The supplementary payment is €1,00 per 100 kilos of milk, Arla announced during the publication of the half-year figures for 2022. 

Arla's performance price over the first six months of 2022 will be €49,60 per 100 kilos. Arla's milk volume decreased to 6,8 billion kilos, compared to 7,0 billion kilos in the same period last year. This is in line with global trends, says the dairy group. Arla's total revenue is €6,38 billion for the first half of 2022, an increase of 17% compared to the first six months of 2022. The revenue increase is due to the price increases that Arla has implemented for supermarkets and foodservice and from the trade in dairy commodities such as milk powders and butter.

CEO Peder Tuborgh says in a statement that Arla wants to compensate the member dairy farmers for the increased production costs with the interim supplementary payment. “To support future investments in sustainable actions on their farms,” said Tuborgh. Arla points to increased prices for fertilizer (145%), fuel (134%) and feed (36%), with global average inflation forecasted for 2022 of 7,7%. 

Further declining milk production
Arla expects continued inflationary pressures and global geopolitical turmoil to negatively impact global growth in the second half of this year. In addition, global milk production is expected to fall further, so Arla expects dairy prices to remain at a high level. "There is an imbalance in supply and demand in the dairy market. All major regions, the United States, Europe and Oceania, are producing less milk and that is an unprecedented situation," Tuborgh said at a (digital) press conference. "There is a red line in that. Dairy farms are faced with high costs and uncertain future expectations due to upcoming government measures in the field of sustainability and climate. That is why there is currently insufficient milk to meet global demand." 

The dairy group fears that this will damage consumer confidence and consumption of dairy. Over the full year 2022, Arla expects a final sales growth of 13,5% to 14% compared to 2021, with the sold volume of the branded products decreasing by 2% to 3% due to the increased prices. "As a cooperative, we aim to pay our members a supplementary payment for the whole year of at least 1,5 euro cents per kilo of milk," says Tuborgh.

Climate bonuses in the milk price
Arla announced the milk price at the end of last week to remain the same for September. Tuborgh indicated that Arla is still in discussions about adjusting the milk price system with extra milk climate allowances, which aims, among other things, to reduce CO2 emissions. The CEO expects that Arla will be able to present this adjustment in the calculation in the autumn. He emphasizes that it is not a shocking change overall: the basis of the current milk price system remains intact. "The model remains the same, we only add a component for climate and sustainability."

Eric the Thrush

Eric is a member of the editorial staff of Boerenbusiness. As a descendant of an arable family, farmer's blood flows through Eric's veins. He considers himself a generalist, but with a preference for economics, trends, markets and marketing.

e.delijster@boerenbusiness. Nl

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