Cooperative values of Arla Foods UK helped deliver on increased demand for dairy during 2020

In a year of volatility and global disruption due to COVID-19, the farmer owned European dairy cooperative Arla quickly reshaped the business to meet the spike in home consumption and high demand for trusted household dairy products while offsetting negative impacts in other sectors.

Arla’s ability to adapt in the UK saw total revenue of £2.12bn (2.38bn euros) in 2020 up from £1.95bn* (2.28bn euro) in 2019. The growth came in both Arla’s branded business, at 13 per cent strategic branded revenue growth and in its own label offering which grew 4 per cent in volume driven revenue growth.

Commenting on the growth, Arla Foods UK MD Ash Amirahmadi comments, “Our branded business increased when consumers turned to food products they trusted during lock down. This was seen most significantly in branded butter when the nation searched for quality ingredients for baking. But it was the volume growth and the support of our retail customers that enabled us to flex our business and ensure the public had access to dairy when lockdown drove a significant increase in retail demand, particularly for own label milk and cheese.”

Key brands that UK shoppers turned to saw positive strategic branded growth in the UK including the Arla brand overall (+8.8 per cent) driven by Cravendale (+23 per cent), Lactofree (+11per cent), Anchor (+9 per cent) and Lurpak (+15 per cent). Whilst Arla’s UK production produced record volumes overall, increased imports of Lurpak from Denmark helped ease demand pressures for butter in UK supermarkets.

While overall revenue grew, the figures also reflect some of the difficult decisions Arla had to make to ensure there was enough dairy for everyone during coronavirus. To maximise overall volume output, a number of Arla’s value added brands temporarily ceased production or were reduced in volume, with Big Milk and Skyr Arla sub brands seeing reductions in strategic branded growth last year of -5.1 per cent and -12.9 per cent respectively.

Arla Foods UK Finance Director Simon Ho comments, “I’m very proud that we can look back at our 2020 results and see the positive impact of our flexible approach to business, in what was a very challenging year. Around 50 per cent of Arla’s products were impacted by production decisions needed to keep our colleagues safe during coronavirus and to ensure there was enough dairy in fridges to help feed the nation. The collaborative nature of our farmer owners, our colleagues and the retailers we partner with was essential to making this happen.”

As with many businesses serving foodservice companies, 2020 created a negative impact overall for the Arla Pro brand which is predominately sold to foodservice businesses. The Arla Pro brand saw a 6% decline in strategic branded revenue growth. Much of this loss came during the first lockdown when foodservice closed without notice. The priority for Arla was to mitigate waste and so 838 tonnes of Arla products such as milk, butter and cheese were donated to the FareShare network. Arla’s contribution resulted in the equivalent to 2 million meals, going directly to people who rely on its work, such as homeless shelters and community cafes. In addition, 580,000 vouchers for Cravendale milk were provided to the Magic Breakfast programme, enough to fill 4.8 million cereal bowls for the most vulnerable children during the pandemic and throughout lockdowns.

While focusing on getting enough product to the retail fridges, the farmers that own Arla also benefited from the cooperative model which commits to always paying for the milk from its owners. This meant that none of Arla’s 2,240 UK farmer owners were left without payment for their milk and they did not have to face the significant concerns of some UK dairy farmers during the challenging year of 2020.

Arla Group results reflect a similar picture

Across the global Arla business which operates in 153 countries, total revenue was EUR 10.6 billion, in spite of revenue losses in Food Service which was overall 12 percent down on 2019. Global branded sales volumes grew 7.7 per cent due to the cooperative’s global portfolio of popular brands such as Arla® and Lurpak® and strong market positions. Profit is in line with the cooperative targets at 3.2 per cent as profits are paid out across the year helping to keep Arla’s pre-paid milk price to its farmer owners relatively stable compared to volatility seen across the dairy industry.

Due to the strong financial position and the forecasted demands on farmers, Arla’s Board of Directors has proposed that the share of profits paid out to farmer owners, in what is  termed the 13^th payment, should be 1.75 eurocent per kg milk (circa 1.58 pence per litre), 0.75 eurocent higher than the standard 1.00 eurocent per kg milk. This proposal will be voted on by Arla’s farmer owners in the last week of February.

Arla’s transformation and efficiencies programme Calcium secured savings of EUR 130 million (£116m), primarily from supply chain efficiencies and optimized marketing spend, but also due to reduced expenses as many office employees worked from home. The accumulated Calcium savings are now EUR 354 million since the launch in 2018 with the end goal of EUR +400 million in sustainable savings by the end of 2021. 

Precariously balanced scales of challenge and optimism for the UK business in the year ahead

Looking ahead to 2021 and beyond, there are many unknowns and increasing pressures that will add colour to an otherwise stable business in 2021. These include:

• Brexit; Reaching a Brexit deal at the end of 2020 prevented significant disruption and financial loss for Arla Foods. The new ways of working and added complexity across supply chain will still add some cost to the business overall, but it is too soon to know the full impact while adjustments are taking place. 2021 will be a time for Arla to continuously monitor the cost of Brexit to its operational business and find ways and solutions to work under the new conditions.
• Coronavirus uncertainty – Supporting and protecting Arla’s front line production and logistics teams who are working under difficult conditions created by coronavirus remain Arla’s absolute priority for 2021. Arla’s 10 UK production sites all continued operations in 2020 and measures such as private site testing and full pay for colleagues isolating will continue in 2021.
• Increasing on farm costs – As a cooperative, ensuring Arla derives the most value for its farmers for the milk they produce is crucial to Arla’s commercial decisions. This will be even more challenging in 2021, as ensuring a fair price for farmers will become increasingly pressured by the additional on farm costs farmers are facing. These costs are rising following a poor harvest last year and very wet weather which is impacting growing season meaning less grass and cereals for cows to eat over the winter when they are indoors. According to a recent analysis by Kite Consulting, cost of production is forecasted to increase by around 6% this year. For British dairy farmers, this could amount to additional costs of £285m.
• Sustainability ambition – whilst already producing milk with around half the average emissions of milk made globally, The farmers that own Arla are committed to continuing their journey to 2050 carbon net zero dairy production. This year will see the publication of Arla’s first Climate Check findings where over 95% of Arla farmers have undertaken climate assessments to identify the best ways to reduce carbon emissions and increase beneficial environmental measures on their farm. Ensuring farmers are receiving the best possible price for their milk will directly impact the extent of the efforts they can make on farm to continue producing the most sustainable milk possible.

Ash Amirahmadi, MD of Arla Foods UK comments, “I am in awe of the Arla team, our farmer owners and everything that has been achieved in 2020. I am also hugely encouraged by the increased understanding of Britain’s supply chains and the reprioritisation of good healthy food that has been highlighted by both Brexit and Coronavirus. I hope one of the few good things that might come from last year will be a renewed recognition that true sustainability only comes when we have the right balance between the economy, the environment and people’s physical and mental well-being.”