Price pressure in the domestic markets, low foreign exchange rates and cuts in export subsidies are putting Arla Foods’ budget under pressure.

As a consequence, the on-account price paid to the Group’s co-operative members will now be reduced by 2 (Danish) øre per kg.

On a background of reduced earnings’ expectations for 2004/05, Arla Foods’ Supervisory Board has decided to reduce the on-account price paid to co-operative members for their milk by two (Danish) øre per kg milk with effect from April 1, 2005.
As this comes into force midway through the financial year, the move brings the expected earnings in line with the budget.

Arla’s Chairman, Knud Erik Jensen, justifies the cut in the on-account price by the considerable uncertainty in the estimate for the full year for the domestic markets and for the ingredients’ area.

“Our margins are already modest in that we have budgetted with an lower supplementary payment for 2004/05 due to the unchanged on account price in October 2004”, said Knud Erik Jensen. “Based on this, the Board also decided not to pay an interim on account supplementary payment.”

Arla’s performance has been seriously affected by strong pressures in the domestic markets, the EU’s aggressive agricultural policies and low foreign exchange rates for GBP and USD. In particular, the increased price pressure in the Danish and Swedish markets is expected to cost Arla Foods in excess of DKK 10 million.

Moreover, export subsidies and production subsidies for caseinate have suffered stronger-than-expected falls. Foreign exchange rates for USD and GBP also remain below the budget, i.e. an average of 55 (Danish) øre in the case of USD and 30 (Danish) øre for GBP.