Arla and DFA Enter into Joint Venture to Tap into Cheese Market

24 Mar 2016 --- Arla and Dairy Farmers of America (DFA) have agreed to enter into a joint venture that includes the construction of a small dairy plant in the US. for cheddar cheese production. In their first collaboration ever, the two farmer-owned cooperatives plan to explore opportunities to build premium-quality standards in the cheddar category, in the world’s biggest cheese market.

A third of the cheese bought by American consumers is cheddar cheese. However, very few brands currently on offer in the US produce cheddar using the highest milk quality available, without growth hormones or artificial ingredients.

“Together with Dairy Farmers of America and eight of their farmers, who will supply the raw milk, we will explore the opportunities in building premium quality standards into the cheddar category through the Arla brand. Adding cheddar to our US portfolio will make us more attractive to the retailers and help increase the sales of our European products made from owner milk,” says Peder Tuborgh, CEO of Arla Foods.

“We are pleased to be entering into this partnership with Arla. Arla and DFA share the same passion for providing the highest quality products to consumers and are committed to sourcing these products from dairy farmers who employ sustainable and transparent farm practices,” says Rick Smith, President and CEO of DFA.

Part of the joint venture agreement is the construction of a production site in the western part of New York State, where the eight farms supplying the raw milk are placed. The farmers are members of DFA and will supply approx. 70,000 tons of raw milk annually, which meets quality standards similar to Arla’s proprietary farm quality program Arlagården. The US market has a restricted import quota system for cheddar, which is why Arla’s possibilities for importing European cheddar are limited and a local production based on American milk is a better solution. The joint investment is $58m of which Arla covers 20 per cent or $11.6m.

Goal to become a top 10 dairy cheese brand
The American market is one of six strategic growth regions identified in Arla’s corporate strategy ‘Good Growth 2020’. The goal is to become a top 10 player in the retail cheese market by expanding the business beyond the deli section into the dairy aisle, where 92 per cent of the US cheese sales take place. A newly launched big bet in the dairy aisle is Arla branded cream cheese, which has no artificial growth hormones, artificial ingredients or flavors.

“US families are increasingly looking for food products that they can feel good about serving and consuming from a better-for-you standpoint. This is exactly the position we have created for the Arla brand with its authenticity, transparency and great taste. It’s an attractive position that currently doesn’t exist in the US dairy aisle or the cheddar segment. Our expectation is that the new cheddar products will create a halo effect for the cream cheese and other Arla branded products,” explains head of Arla Foods USA Don Stohrer Jr..

The joint venture will be owned 70 per cent by DFA, who also holds the management role, 20 per cent by Arla and 10 per cent by the eight farmers who supply the milk. 30 people are expected to be employed in the joint venture. The construction of the site will begin in the fall this year and production is expected to start in the fall 2017.