Arla Foods, the dairy giant, has blamed the “global financial crisis” for its decision to slash the milk prices it will pay its farmers in 2009.
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The Danish-Swedish co-operative, one of Europe’s largest dairy groups, said falling dairy consumption, trading down among consumers, a drop in global milk prices and currency fluctuations had prompted its decision to cut price to farmers this year.
Yesterday (8 January), the Arla board approved the company’s budget for 2009 and set out plans to pay farmers DKK232.4 per kg of conventional milk and DKK300.3 for organic milk.
“In terms of price, we have returned to the period prior to the major price increases in the summer of 2007,” Arla CEO Peder Tuborgh said. “Although this represents a dramatic fall, we cannot allow the global crisis to deflect us from our objectives. Regardless of the difficult market conditions, we must continue to develop the business and increase profitability.”
Arla said it would aim to pay “one of Europe’s highest milk prices” through a tight control on costs. “All parts of the business will have to be made more efficient and productivity will be improved in order to minimise cost increases at a time when, unfortunately, we can expect turnover to fall,” Tuborgh said.
For 2009, Arla has budgeted for net turnover of DKK47bn and net profit of DKK899m.
Tuborgh warned that the next 12 months would prove “a difficult year” but insisted Arla must press on with its new strategy, which it unveiled three months ago.
Among the initiatives, Arla is looking to invest more in markets like Russia, China and the US and double its spending on product innovation.
“On the one hand, we must continue to pursue our chosen strategy, a strategy in which we have confidence, and on the other hand, we must control our costs and generate savings wherever we can. We believe this is the way to get through the current slow-down,” Tuborgh said.
“In other words, we have weighed the short-term challenges against our long-term, strategic ambitions and found a sensible balance based on the goal of securing the best possible earnings.”
