Arla Foods, the dairy company owned by over 8,400 farmers across several European countries, has reported group revenue of just over €7 billion for the first half of 2023. This marks an almost 11% increase compared to the same period last year when revenue stood at €6.3 billion. The company attributed this growth primarily to previous price increases in Arla’s retail and foodservice sectors. However, the first half of 2023 was also characterized by inflationary pressure, declining dairy commodity prices, and shifting consumer behaviors. Despite these challenges, Arla achieved a net profit of €103 million, equivalent to 1.5% of revenue, down from 3% in the same period last year.
Arla managed to mitigate the negative impact of market dynamics and delivered a performance price of 49.7c/kg of milk, resulting in a half-year supplementary payment of 1c/kg of milk for its farmers. The company’s average pre-paid milk price increased to 48.2c/kg in the first half of 2023, compared to 46.6c/kg in the same period last year and 52.0c/kg for the full year of 2022. Arla’s average performance price, which measures the value created per kilogram of owner milk, remained steady at 49.7c/kg, with a slight increase of 0.1c/kg compared to the first half of 2022.
Torben Dahl Nyholm, Arla’s chief financial officer, acknowledged the inflationary pressure and the resulting shift in consumer behavior, which led to increased demand for discount channels and private label products. Despite these challenges, some of Arla’s brands experienced strong volume growth in Europe, including Starbucks (+21.6%) and Arla Protein (+51.6%). Arla’s European business revenue also saw a significant increase of 15.4%, reaching just over €4 billion in the first half of 2023, compared to €3.5 billion in the same period last year.
In terms of sustainability, Arla introduced a program last year to incentivize its farmer owners to adopt climate and sustainability initiatives. By June 2023, 94% of Arla’s farmer owners had submitted their climate check data and registered sustainability activities related to feeding, manure handling, energy optimization, and renewable electricity. Starting from July 1, 2023, the incentive model will be integrated into the monthly milk price payment, providing farmers with a tangible financial incentive to reduce their carbon footprint.
Looking ahead, Arla anticipates that inflationary pressures will continue to influence consumer behavior for the remainder of 2023, resulting in volume pressures across most markets. The company also expects volatility in the dairy commodity markets, making market firmness uncertain for the rest of the year. Consequently, Arla has adjusted its full-year revenue expectations to €13.2-13.7 billion and narrowed its profit range to 2.8-3% of revenue. This adjustment will allow for another supplementary payment to farmers.
Overall, Arla Foods’ financial results for the first half of 2023 demonstrate growth in revenue, despite the challenges posed by inflation, declining commodity prices, and changing consumer preferences. The company’s focus on sustainability initiatives and its ability to adapt to market dynamics will be crucial in navigating the uncertainties that lie ahead.