Arla Foods sets fund to incentivize dairy farmers for climate efforts, starting 2023

07 Oct 2022 --- Dairy cooperative Arla Foods will motivate farmers to hit their 2030 sustainability goals through a €500 million (US$490 million) annual incentive program that rewards green practices. The company plans to initiate the program in August 2023, and earmarks spending around US$264.5 million during the first full year of implementation.

“We expect the yield per cow – a large driver of the carbon footprint – not to diminish and to keep increasing,” Peder Tuborgh, Arla’s CEO, tells FoodIngredientsFirst.

“Understanding the cow, precision feeding and best animal welfare practices” are key to improving yields, flags Tuborgh, who explains how, in his native Denmark, half a million cows produce the same amount of milk as a million and a half did in 1963 when he was born.

Tuborgh reflects that Arla is focusing on the long term amid “hyperinflation, increased prices on food, the energy crisis, war in Europe and a potential lack of fertilizer in 2023 that can lead to lack of food.”

Payments are capped at US$2.4 cents for each kilo of milk produced, with Arla expecting their 8,900 members to average US$2.1 cents in benefits, which translates to €26,000 (US$25,500) for the average farmer who produces around 1.2 million kg of milk annually.

Levers to emission reduction
The program will analyze and measure 19 categories.

“The milk price Arla farmers will receive for their milk will not only depend on fat, protein and quality, it will also depend on their activities on sustainability,” states Arla’s chair, Jan Toft Nørgaard.

The company plans to achieve a 63% reduction in greenhouse emissions by 2030.In its biodiversity and carbon farming aspect, the company will monitor grazing, continuous plant cover, perennial crops, permanent grassland, soil sampling and biodiversity and soil health check.

Furthermore, in the manure handling category, it will review biogas and in-house acidification and band spreader. The program will also reward the use of renewable electricity and the participation of farmers in knowledge-building events.

The system will be built using a scoring system out of a hundred, with Arla grading until 80 for now, as the system will be improved in the next few years. The company plans to achieve a 63% reduction of greenhouse emissions by 2030 – with 2015 as a base year – and has a 30% scope, three reduction target.

“Activities with bigger improvement potential for climate and nature will lead to the most points – and therefore also the biggest financial incentive,” highlights the company.

Milk prices flatten
Dairy prices went down 0.6% from August, a third consecutive monthly decline. However, they remain 20.7% higher than a year ago.

International prices of all dairy products declined “to a great extent reflecting the impact of the weaker Euro against the US dollar” used in world dairy prices (expressed in US$), according to the UN’s Food and Agriculture Organization (FAO).

“Limited market demand for medium-term deliveries due to apprehensions over market uncertainties stemming from tight milk production, high energy costs and labor shortages, especially in Europe, coupled with bleak global economic growth prospects, also weighed on international dairy price quotations. Meanwhile, demand for spot supplies remained robust, especially from Asia,” warns FAO. 

Notably, Rabobank’s August Global Dairy Top 20 report already revealed a robust global dairy demand that has propelled milk prices since 2021.

By Marc Cervera