Arla Foods UK revenues jump by 17.5 per cent on price rises

Arla Foods UK reported 17.5 per cent increase in 2022 to £2.6bn driven by price increases.

The cooperative said the price increase was ‘necessary’ to support its farmer owners through unprecedented cost increases and navigate the significant inflationary pressure and volatile market.

With the cost of producing milk reaching unprecedented levels, Arla said it was able to provide more support to its farmer owners through a competitive milk price to help alleviate the pressure as they faced soaring costs for materials needed to keep milk supply going.

As the cost of living crisis gained momentum and consumer spending habits changed, Arla’s total branded growth saw a slowdown following two years of exceptionally high growth during the pandemic, with a 7 per cent decline year on year.

With positive momentum continuing in Arla’s foodservice division, Arla Pro grew by 17 per cent, driven by channel and category expansion, as the market continued to recover from post covid restrictions.

In 2022, Arla achieved a net profit allocated to farmer owners of €382 million (£337.65m), or 2.8 per cent of revenue, which is at the bottom end of its target range of 2.8-3.2 per cent. Profit was driven by unprecedented high margins on commodity products, which, together with high production costs put retail and foodservice margins under pressure.

“As we saw in the first half of last year, inflationary pressure and uncertainty for us and our farmer owners continued to dominate, as we saw the cost of producing milk soar to levels we have never seen before,” Ash Amirahmadi, managing director of Arla Foods UK, commented.

“For us, balancing increased returns to our farmer owners to enable them to keep producing milk, whilst ensuring our nutritious dairy products remain accessible and affordable for shoppers was a key priority that we had to face to into.”

Total Arla Group revenue increased by 23.2 per cent to €13.8 billion compared to €11.2 billion in 2021. Revenue growth was almost exclusively driven by increased prices, as stagnating supply and steady demand drove up commodity and retail prices, contributing positively to the increase.

Arla expects high inflation and volatility to continue to impact the business in 2023. The group expects its branded volumes to decline by -3.5 to -1.5 per cent in 2023, and expect to start growing its volumes again from 2024. Group revenue outlook for 2023 is expected to be €13.6-14.2 billion and net profit share will be in the range of 2.8 to 3.2 per cent.

“2023 will undoubtedly be another difficult year with the challenging economic environment globally and the ongoing effects of the war in Ukraine continuing to impact the energy market and supply chains,” Peder Tuborgh, Arla Foods chief executive, said.

“We are currently seeing some easing of cost pressure on farmers, and as a result we expect the supply and demand balance to be restored on the dairy market over the course of 2023. Commodity prices, however, began a sharp decline during the fourth quarter of 2022, and we expect further decrease on the commodity markets in 2023. We also expect to see a continued slow-down in branded growth due to reduced buying power of consumers and fear of recession.”