Arla Foods looks set to close three dairies amid what the dairy giant described as “tough competition” in the market for yellow cheese.

The co-operative said today (13 April) that it was “rationalising” its production of yellow cheese to counter competition on international markets and falling milk volumes in Sweden.

As part of the move, Arla is investing DKK615m (US$119.5m) in its in Nr. Vium and Taulov dairies in Denmark.

However, the decision to invest in those sites means its dairy in the Swedish town of Falkenberg will close. Some 150 staff are employed at the Falkenberg site.

Arla also admitted that two other dairies in Denmark – in Klovborg and Hjorring – are also expected to be shut. The Klovborg site employs 37 staff. Some 106 employees are at the Hjorring facility.

“Market conditions are tough and if we don’t act now even more jobs will be lost within a few years,” said Arla executive vice president Jais Valeur. “Of course, it’s sad for the many colleagues who may lose their jobs but we hope that we’ll be able to maintain other jobs at Arla’s dairies going forward. An added benefit is that we’ll be able to use Swedish milk more efficiently – for the benefit of both milk producers and consumers.”

Milk volumes have been falling in Sweden since 2003, leading to over-capacity at Arla’s dairies in the country.

Falkenberg’s cheese production will move to Nr. Vium, while, over the next three years, Arla will expand its Taulov site and increase capacity there by 60%. Arla said ten new jobs would be created at Nr. Vium and added that it would take on 43 more staff at Taulov.

“The challenge in Sweden is to fill our dairies,” Valeur added. “To avoid empty plants a few years down the line, we have to react now. If we don’t, production costs will be higher and the milk price paid to our owners will fall. And that’s not in our interests.”