Milk supplies under threat if farmers not compensated, Arla exec warns

29 Mar 2022 --- Dairy giant Arla has called for higher wages for dairy farmers, citing a decrease in milk production due to rising costs. Impending milk shortages are imminent if the industry does not step in and pay farmers more for their produce, Arla states.

“Farmers are seeing record-high costs on-farm, on energy, feed, fertilizer, labor and lots of other areas of production. These are in part due to inflation but also being exacerbated by the current situation in Ukraine,” Ash Amirahmadi, managing director, Arla Foods UK tells FoodIngredientsFirst.

Raw material costs have increased in leaps and bounds and farmers are struggling to cover their overhead costs. 

With cost increases as high as 36%, Arla warned farmers need confidence to carry on producing while making hard decisions as a result of the economic climate. That means securing a higher price from Arla’s customers – the supermarkets.

“This comes at a time where farmers already need support with the sustainable dairy journey they are on, particularly on farm investment. As part of the strategy for the UK we are looking at ways to increase the profitability of own label liquid milk in the UK which for a number of years has been a category of the UK dairy sector where the market is failing to deliver value for farmers,” says Amirahmadi.  

Breaking even is vital for dairy farmers
Arla Foods is the fifth biggest dairy company in the world and the largest supplier of fresh milk and cream in the UK. The co-operative has 2,100 dairy farmers in the UK and 8,950 across Europe.The price of milk is much lower than a few years ago.

“As a cooperative, everything the business side of Arla does is to ensure our farmer owners have the best return for the milk they produce on-farm. We are acutely aware of the inflation challenges our farmers are facing and we have a laser sharp focus on recouping the increasing costs of production on their behalf,” explains Amirahmadi. 

“We have to ensure that our farmers have the confidence and resources to invest in their businesses to ensure we can continue to realize our sustainability ambitions,” he says.

With increasing global demand for dairy against decreasing supply, the UK has begun trialing export options where it can secure a better return for its milk. 

“Farmers have to be compensated for the increasing costs on farms if we are to avoid further decrease in milk production at a time when global demand is increasing. Our plans set out the way we intend to increase the profitability of the UK market,” says Amirahmadi.

The price of milk in the shops is 7% lower now than it was ten years ago. However, the price consumers pay is different to the prices farmers receive to produce it. The break even price is key for farmers which includes any extra income and government subsidies.

According to Arla, the industry has kept costs down over the years by becoming more efficient. Many supermarkets have direct contracts with farmers based on their own cost of production models to try to give them a fairer deal.Arla is trialing the export of milk from the UK.

Rising global dairy demand
Arla believes increasing global demand for dairy is an opportunity for farmers in the UK. The prices paid to farmers abroad are now 15% higher than the prices paid to farmers in the UK. 

The company is trialing the export of fresh British milk for processing at its European sites which is then sold on international markets.

The dairy giant is the first producer to consider doing this at scale.

“Using the scale of our cooperative, moving UK milk to our European production sites for international sales is a means by which to increase the return for our owners. 

“Over the next five years, Arla will also look to grow its UK business through a combination of branded and added-value private label innovation in prioritized categories like liquid milk, yogurts, butter and spreads, milk-based beverages and cheese. The ambition is to grow the branded share of the revenue to 45% from 38%,” Amirahmadi concludes.

By Inga de Jong