Arla’s “point system” rewards climate-forward farmers with share of US$326 million

15 Aug 2023 --- European dairy cooperative Arla has started to pay out a monthly incentive to its farmer owners based on their sustainability efforts. The incentive is a data-driven and science-based points system that rewards climate activities and other environmental initiatives on farms.

Arla expects to pay out €2.2 billion (US$2.39 billion) until 2030 for the farmers’ sustainability efforts. The first payment to farmers, of €300 million (US$326.4 million), has been activated.

Nonetheless, an Arla spokesperson says it is ramping efforts to reach its 2030 climate target.

“A continuous reduction of 2.4% a year will leave us just shy of the -30% mark by 2030 [scope 3 emissions], so the reduction will have to accelerate slightly in the coming years. However, this recent reduction of 2.4% shows that the needle is moving and our sustainability incentive model will only further feed that development,” they tell Food Ingredients First.

Best players get larger payouts
Farmers who do the most for climate and the environment receive the highest payments.

“I have been looking forward to this. The sustainability incentive is a large step toward linking the economy, climate and nature improvements on farms,” says Peder Tuborgh, Arla’s CEO.

“Arla’s unique point system makes it possible for us to reward our owners and thus contribute to their large investments in sustainability. At the same time, we strengthen the farmers’ motivation to implement the initiatives necessary for our cooperative to reach its ambitious climate goals for 2030.” 

Sizeable payments
Arla paid out on average US$1.57 cents per kilo of milk produced. For an average Arla farm with milk production of 1.6 million kg, this amounts to €40,000 annually (US$43,600). On top of this is another US$1.09 cents per kilo of milk for submitting the Climate Check, which Arla requires to qualify for the sustainability incentive. 

Arla paid out on average US$1.57 cents per kilo of milk produced. Payments are capped at US$2.4 cents for each kilo of milk produced. When designing the plan, Arla initially expected to pay US$2.1 cents in benefits. This was based on calculations of farmers receiving 39 points out of 80. However, the average farmer was more sustainable than initially predicted and achieved 48 points.

Each point the farmers earn represents €0.04 (US$0.04) cents per kg of milk.

“We do not have a specific target for how many points farmer owners should achieve year on year, but the expectation is that farmer owners see the benefit in achieving more points as the model is also set to grow in terms of the number of points available,” the spokesperson explains.

Arla also expects the final amount of US$2.39 billion by 2030 to be higher as farmers become motivated by the incentive and make further improvements. Payments are updated quarterly to keep up with farmers’ sustainability updates on their farms.

Quantifiable CO2 reductions
Farmers exceeded expectations, according to Arla and reduced emissions by more than 2.4% in 2022, compared to 2021. 

The main drivers for the emission reductions are the more efficient use of feed and fertilizer, the better management of manure storage, the lower energy consumption and the switch to more renewable electricity sources.

“It is a significant effort for the individual farmer; however, many are well on their way and together we can motivate each other, such as through a financial incentive using our new points-based model. I am keen to watch the level going forward, because with this large engagement we will be able to move really far in a short period of time,” says Jan Toft Nørgaard, chairman of the board at Arla Foods.

External climate advisors validate Arla’s farmers emissions. According to the spokesperson, 95% of the cooperative’s farmer-owners, covering 99% of its milk pool, submitted data to the Climate Check data in 2022. All data is audited externally by Ernst & Young.Arla farmers reduced emissions by more than 2.4% in 2022, compared to 2021.

In other sustainable initiatives by Arla last month, the company joined forces with Blue Ocean Closures, a Swedish start-up specializing in sustainable closures, to develop a new cap made from biodegradable and recyclable fiber material. The closure will potentially reduce Arla’s plastic consumption by 500 metric tons annually.

Last week, the company achieved its first non-GMO project certification. Meanwhile, in other developments, it also inked a deal with Novozymes to innovate advanced ingredients using precision fermentation.

Emissions target and points system
Arla plans to achieve a 63% reduction in greenhouse emissions by 2030.

The points system measures up to 19 different aspects.

In its biodiversity and carbon farming efforts, the company monitors grazing, continuous plant cover, perennial crops, permanent grassland, soil sampling and biodiversity and soil health check.

Furthermore, in the manure handling category, it reviews biogas and in-house acidification and band spreaders. The program also rewards the use of renewable electricity and the participation of farmers in knowledge-building events.

Arla plans to achieve a 63% reduction of greenhouse emissions by 2030 – with 2015 as a base year – and has, as mentioned, a 30% scope three reduction target.

”It is a fundamental premise for our incentive model that is data-driven and science-based. We want to drive activities that make a real impact on climate and environment. Our owners and the outside world demand that,” concludes Tuborgh.

By Marc Cervera