Tough times ahead for Arla Foods

Following weaker sales in domestic markets coupled with increasing competition and falling revenues from exports, Arla Foods is now expecting a bigger fall in the milk price paid to its co-operative members.

”We now believe that the budgetted reduction in the on-account price will be insufficient and that the actual reduction may be twice what we had anticipated,” Managing Director Åke Modig told Arla Foods’ Board of Representatives at a meeting in Århus last week.

The warning was delivered in Åke Modig’s first report since taking over as Managing Director on January 1, 2004. Arla Foods’ three business areas, the domestic markets in Denmark and Sweden, exports of cheese and butter to Europe and the rest of the world and sales of added value milk powder have all come under substantial pressure.

In the UK, however, Arla is performing well. Benefiting from a strong financial base, the new UK company, Arla Foods UK plc, has had a good start during which the company’s share price has risen on the London Stock Exchange.

In Denmark and Sweden, where Arla Foods is losing market share, the outlook is less than encouraging. “The situation in these markets is particularly difficult,” Åke Modig told the representatives.

”We’re losing market share to imported products while, at the same time, the discounters are adding to the pressure on our branded products. Moreover, there is little likelihood of volume growth in the market in general – and the situation is similar in the rest of Europe.

In the longer term, Åke Modig, however, maintains that the outlook is positive.

”There is great deal of confidence throughout the Group,” he said. “We believe in the future and we’re investing for the future. As conditions will eventually improve, we have to look forward.”