Powder strategy to counteract EU reforms

Pro-active strategy for Arla Foods' production of skimmed milk powder to alleviate the effects of the EU reform.

”Although we’ve done a great deal, it’s not enough to offset the price falls wanted by the politicians,” says Sales Director Jais Valeur, Ingredients Division.

The EU milk reform will mean that the price of skimmed milk powder is likely to fall by 15% over the next four years. The initial phase of this process has already begun with the lowering of the EU’s intervention price from July 1, 2004. However, the Ingredients Division, which is responsible for Arla Foods’ sales of milk powder, takes an upbeat view of the situation.

Less milk in Europe
”Global demand for skimmed milk powder is currently strong,” explains Jais Valeur. “This is partly due to the fact that European milk volumes have been almost 2% below normal up until May and that Australian volumes have fallen by 2.5% because of last year’s drought.”

Jais Valeur also points out that European dairies have cut their production of skimmed milk powder by up to 20% in the peak season because of the impending price falls stemming from the EU reform.

”These circumstances upon which we have no influence mean that the effects of the EU reform will be delayed for some months, but they’ll come,” he says.

”Once the Vimmerby plant in Sweden starts producing the more profitable full-cream milk powder, we will reduce the production of skimmed milk powder by 20,000 tons,” says Jais Valeur. “We also intend to discontinue sales to some markets where we sell skimmed milk powder at unsatisfactory prices and switch sales to Europe instead. To avoid dramatic price falls, we will have to look closely at our product range and costs.”