Tough market conditions lead to lower milk prices
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- 28 June 2004
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Declining volumes in the Danish and Swedish markets and lower world market prices are some of the reasons for Arla Foods failing to meet its forecast result.
At the meeting of the Board of Representatives this week, Managing Director Åke Modig presented a forecast indicating that the result for Arla Foods’ divisions will fall approximately DKK 100 million below budget with consolidated result approximately 3.5 øre below budget. Although all efforts are focused on limiting the shortfall, uncertainties remain about the supplementary payment for the year.
“The most dramatic change is in Denmark where the dairy market has undergone significant change within an extraordinarily short time,” says Åke Modig. “Cheap German milk has arrived in supermarkets and although Arla Foods’ response to the German milk, DanMælk, has proved an effective answer by achieving a market share of 12%, the fact remains that the milk price continues its downward trend in Danish stores.”
Lower volumes in Sweden
Sweden is currently experiencing a decline in the consumption of dairy products while cheese imports are rising. The multiples are focusing strongly on own label, a trend which is affecting of Arla Foods’ branded products. One consequence of this is that the Sweden Division is now producing own label for the first time.
Arla Foods UK plc is performing well in the UK where investments in marketing have created increased sales for, e.g. Lurpak. Arla Foods’ filtered milk, Cravendale, is also much in demand.
Unrest in the Middle East
The low dollar rate means that Arla Foods is seeing lower earnings from export products. This is primarily affecting the Overseas Division and Ingredients. Although the Middle East, which accounts for half of Arla Foods’ exports outside Europe, is normally a strong and profitable market, the political turbulence has had an adverse effect.
The large amounts of cheese in store in the European market has resulted in dramatic price falls. As a result, milk powder and butter have been more profitable.
The budget process for the next financial year is well underway although it’s too early predict the milk price for 2004/05.
“The markets are characterised by great uncertainty and current forecasts of a farmgate price of 2.25 Danish øre are highly uncertain,” says Åke Modig.
Future milk prices are characterised by a great deal of uncertainty. Managing Director Åke Modig, however, expressed some optimism in his report to the Board of Representatives.
Hope for the future
There are, however, certain signs that indicate rising international demand. These include the fact that cheese prices seem to have bottomed out, milk production in Europe is lower as well as the fact that Australia has suffered extensive droughts and consequently will be unable to maintain normal dairy production. This has resulted in higher butter prices and good prices for whey proteins.
“Perhaps we’re seeing the early beginnings of an upturn in international trends,” ventures Åke Modig.
Arla Foods is an international dairy company owned by 9,400 farmers from Denmark, Sweden, the UK, Germany, Belgium, Luxembourg and the Netherlands. Arla Foods is one of the leading players in the international dairy arena with well-known brands like Arla®, Lurpak®, Puck® and Castello®. Arla Foods is focused on providing good dairy nourishment from sustainable farming and operations and is also the world's largest manufacturer of organic dairy products.