Future26: Arla Foods launches new strategy in defining moment for dairy
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- 5 min
- 03 November 2021
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Today, the European dairy cooperative Arla Foods unveils its new five-year strategy to cement its commitment to create sustainable dairy production and to grow its business responsibly. In the next five years, Arla is prepared to increase its investments by more than 40% to 4+ billion EUR focused on sustainability, digitalization, new production technologies and product development while also increasing its dividend to 1+ billion EUR to support its farmer owners on their sustainability journey.
Globally, demand for dairy products is growing, and at the same time consumers are becoming more conscientious and expect the food they eat to be healthy and affordable, and produced responsibly and sustainably.
In the next five years, the global dairy market is expected to grow by 2% each year. In the Middle East, Africa, and the Asia Pacific countries a growing population will drive an increased demand for dairy nutrition. In Europe, where dairy has been a more integral part of daily meals for many years, consumers now search for products that meet their needs within health and wellness, convenience, and sustainable production.
With this global outlook and building on its successful Good Growth 2020 strategy securing growth and market leading positions in both territories, dairy categories and its global brands, in the next five years Arla is prepared to increase its investments by more than 40% to 4+ billion EUR in sustainability actions, product innovations, capacity expansions and digitalization while also delivering one of the industry’s most competitive milk prices to its farmer owners. Arla has just announced a new retainment policy allocating a higher supplementary payment of 1+ billion EUR over the next strategy period to support its farmer owners on their sustainability journey. Going forward, the supplementary payment will be 1.5 EURc per kg of milk instead of the current 1.0 EURc per kg of milk, provided the Company achieves an annual net profit of at least 2.8% of revenue, and to be paid out in two installments in March and September instead of only once a year.
“With our Good Growth 2020 strategy we created the right recipe to grow our brands, deliver efficiencies and invest in sustainable actions across our value chain, while securing a competitive milk price to our farmer owners. Standing on this successful platform, our new strategy Future26 will move our cooperative to the next level, grow our global business responsibly to meet the fast-changing eating habits among consumers and their increasing demand for sustainably produced dairy products and improve returns to our farmer owners,” says Arla Foods CEO Peder Tuborgh.
A leader in sustainable dairy
In the next five years, Arla will continue to take industry lead on data-driven sustainable dairy production throughout its value chain and raise its commitments to meet the 1.5-degree goal set by the Paris Agreement.
Over the last decades, Arla’s farmer owners have steadily worked towards sustainable farming and today they are among the most climate efficient dairy farmers in the world producing milk with an average of 1.15 kg CO2e per kilo of milk.
Arla’s farmer owners are committed to accelerate their reduction of greenhouse gas emissions towards the science-based 30% goal in 2030. Across its operations, Arla has raised its target to a 63% reduction of greenhouse gas emissions by 2030 which it will deliver by accelerating its conversion to green electricity, fossil-free fleets, making all packaging recyclable and having zero virgin plastics in branded packaging by 2030.
Future26 value creation
During Good Growth 2020, Arla has strengthened its position as a market leader in Northern Europe, the UK and the Middle East and its global brands Arla®, Lurpak®, Castello®, Puck® and Starbucks® are strong and trusted household names. In the next five years, Arla will utilize its key competitive advantage and grow its branded business by 3-4% year on year by investing in category innovation and development, new production technologies and supply chain scale.
Arla will also invest in its global specialized high-quality milk and whey ingredients business, Arla Foods Ingredients (AFI) to secure world class innovation and collaboration and develop new solutions for its partners. The newly opened Innovation Centre in Western Jutland in Denmark aims to be the powerhouse to step change future opportunities and innovation efforts in AFI.
Arla has successfully built its export business to markets such as China, West Africa, Rest of World and Southeast Asia where consumer demand for affordable dairy nutrition exceeds local production and supply. With the Future26 strategy, Arla will strengthen and expand its presence in these markets within dairy categories such as butter and cheese, organic, affordable dairy nutrition and Early Life Nutrition.
As urbanization and higher average incomes change consumer food habits towards more convenience and dining out, Arla will fast track its e-commerce capability to support its customers’ online channels and invest in foodservice innovations and technologies within categories such as mozzarella.
Funding our Future
Building on the transformation programme Calcium, Arla will maintain its focus on optimizing its ways of working through what it calls “Fund our Future” which aims to reach cost savings of 500 million EUR before inflation during the next strategy period. Arla will invest in end-to-end solutions to deliver efficiencies and improve productivity through further automation, digital tools, and up-skilling of employees, reducing waste and energy consumption.
“We are at a defining moment for dairy and our farmer owners. The twin challenges of climate change and malnutrition are the most difficult facing our global food systems. It requires urgent action, and dairy is part of the solution. If there ever was a time to step up and create the future of dairy, it is now. In the next five years, we must collaborate with our owners, customers, and partners to accelerate our transformation to a resilient and sustainable dairy value chain fit for the future,” says Arla Foods CEO, Peder Tuborgh.
*Source: Euromonitor, Dairy including Baby Foods (2021), RSP.
Scope 1-2: -63% by 2030
Scope 3: 30% by 2030
Zero virgin plastics in branded packaging by 2030 Carbon net zero in 2050
4+ billion EUR
Overall branded growth 3-4% CAGR Europe 1-2% CAGR Int’l 5-7% CAGR AFI 4-6% CAGR
Peer Group Index
- A guaranteed supplementary payment of 1.5 EURc/kg of milk up from 1.0 EURc/kg of milk - provided annual net profit of at least 2.8% of revenue equaling 1+ billion EUR over the next strategy period
- The supplementary payment to be paid out in two installments instead of one in September and March. The size of the September payment will be decided by the Board of Directors based on the Half Year results and the financial expectations for Full Year.
- The retainment kept in the company is reduced from 1.5 EURc/kg of milk to max. 1.0 EURc/kg of milk
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.