Arla Foods navigated the inflationary environment of 2022 effectively, delivering a strong performance that enabled it to deliver a significant increase in its prepaid milk price and an above target supplementary payment to its farmer owners of 2.2 EUR-cent per kg milk for the full year.
The European dairy cooperative also took significant steps on its sustainability journey by lowering scope 1, 2 and 3 emissions and successfully developing its Sustainability Incentive Model that will be introduced in 2023, which will include a sustainability payment as part of its milk price to support and enable farmer investments. Total Arla Group revenue increased by 23.2 per cent to EUR 13.8 billion compared to EUR 11.2 billion in 2021. Revenue growth was almost exclusively driven by increased prices. Stagnating supply and steady demand drove up commodity and retail prices, which contributed positively to the increase. Arla’s average pre-paid milk price increased by 40.5 per cent from 37.0 EUR-cent/kg in 2021 to 52.0 EURcent/kg in 2022. Its performance price, which measures the value Arla adds to each kilo of its owners’ milk, was 55.1 EUR-cent/kg, a 38.8 per cent increase compared to 2021. In 2022, Arla achieved a net profit allocated to farmer owners of EUR 382 million, or 2.8 per cent of revenue, which is at the bottom end of its target range of 2.8-3.2 per cent. Profit was driven by unprecedented high margins on commodity products, which, together with high production costs put retail and foodservice margins under pressure. The financial performance allowed the Arla Board of Directors to propose a supplementary payment to farmers of 2.2 EUR-cent per kg of milk delivered, 0.7 EUR-cent above the level set in Arla’s new retainment policy, for the first time paid out over two instalments in September and March 2023. The higher returns helped alleviate pressure on farmers, who faced soaring production cost as prices on feed, fertilizer and energy reached unprecedented levels. It also supported them in making the investments required to continue their transition to more sustainable dairy production and meet Arla’s on-farm target of reducing CO2e by 30 per cent by 2030.
Said Jan Toft Nørgaard, Chairman, Arla Foods: ”2022 was a year dominated by inflation and uncertainty for both farmers and our company. Despite this challenging environment, we delivered solid results while taking important strides forward on sustainability. As a cooperative, we took a historic step in 2022 with the decision to introduce a sustainability incentive that ties the individual farmers’ milk price to sustainability activities and performance. A total of up to 500 million euro will be redistributed every year, showing our ambition to be at the forefront of progressive dairy farming.”
Following two years of exceptional branded growth in retail sales during the Covid-19 pandemic, branded volume growth slowed down in 2022, as the cost-of-living crisis impacted consumers and exerted pressure across the whole value chain. Significant downward pressure on consumer spending power, particularly in Arla Foods Aarhus, Denmark 9 February 2023 Europe and Africa, led to consumers both trading down to cheaper products and consuming less dairy in general. By the end of 2022, the European dairy category demand was down approx. 5 per cent compared to the same time in 2021.
Added Arla CEO, Peder Tuborgh: “The cost-of-living crisis impacted us across the world, particularly affecting our brands which, whilst they continue to be a key value creator for our business, declined volumes by 3.2 per cent. Some exceptions to this were our foodservice brand Arla Pro, Arla Protein and our Starbucks business, which all contributed with positive growth rates. Our international business also grew volumes with Puck® performing well in the Middle East.” For more visit arla.com