The CEO of dairy giant Arla Foods today (26 February) admitted the company’s profits in 2008 were “not satisfactory”.
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The Danish-Swedish co-operative booked profits of DKK556m (US$95.3m), DKK350m below budget and down from DKK938m filed in 2007.
Arla CEO Peder Tuborgh said the global economic downturn had hit demand for dairy, while consumers were also buying less expensive products.
“The financial crisis, which has also put the milk market under considerable pressure, has clearly impacted on the year’s result,” Tuborgh said. “Contributory factors also include the decline in foreign exchange rates, consumers buying less and opting for cheaper products, and milk supply exceeding demand. The final months of the year were worse than feared and as a consequence we had to downgrade our expectations for the year in December 2008.”
During 2007, milk prices soared but throughout 2008 prices have fallen, which has meant lower returns for dairy farmers.
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By GlobalData“Although 2008 got off to a fairly good start, in global terms, the trend over the last six months of 2008 has been uniformly downwards: towards historically low milk prices,” Tuborgh said. “This has impacted on all dairy companies, including Arla and its co-operative members.
“The total milk price paid to Arla’s co-operative members in 2008 is good, but this is in strong contrast to the current price which is under heavy pressure.”
Arla paid DKK2.5bn more to the co-op’s milk producers in 2008 than a year earlier. Arla said its milk price rose 14% on the year to DKK2.82. The company’s supplementary payment to its members stood at DKK0.022 per kilo of milk.
Jørn Wendel Andersen, Arla’s finance director, said the group’s profits would have been higher if it had lowered the milk price it pays to farmers further during the autumn but said prices were kept high to benefit the company’s members.
“The result of DKK556m for 2008 is lower than it has been for many years,” Andersen said. “If the milk price paid to co-operative members had been reduced further during the autumn, the result would have been higher. Nevertheless, in view of our owners’ financial situation, it was a question of keeping the milk price high for as long as possible.”
Arla’s turnover rose 4% to DKK49bn during 2008, as the weakness of sterling and the Swedish krona weighed on results. At constant currencies, sales would have rose 9%.
