Arla Foods intends to increase its focus on growth markets such as Russia, China, the Middle East and Africa over the next five years, in a strategic move away from the stagnated European market.
Under its new Strategy 2017, Arla intends to build on the massive export potential held by these markets over the next five years through co-operation with local industry, the development of distribution networks, and investment in marketing.
According to the Swedish-Danish dairy giant, overall revenue generated in these markets is expected to increase from approximately 3.5bn DKK ($622m) to 10bn DKK ($1.77bn) by 2017.
“We now increase our focus on Russia, China and the Middle East & Africa region. Our export to these markets is growing rapidly, and we will work hard over the next five years to build on the massive potential that these markets hold for Arla’s products,” said Arla Foods CEO, Peder Tuborgh.
European innovation, not expansion
While increasing its focus on markets outside of the European Union (EU), Arla will also increased its focus on improving the efficiency of its activities in Denmark, Sweden, the UK, Germany, Finland, and the Netherlands - its core North European markets.
According to Arla, business in the region must continue to develop – but through profitability and innovation, not mergers and acquisitions.
“Our company has grown and Arla has a lot of un-utilised potential that our owners expect us to put to good use. We can do this by further advancing our relations with customers and consumers, offering more attractive products, and finding new ways to inspire our customers,” said Tuborgh.
He added that the firm will continue to focus on its three global brands – Arla, Lurpak, and Costello.
Arla has also set ambitious targets for its ingredients business, Arla Food Ingredients (AFI).
AFI, which manufactures and markets whey protein and lactose- and milk-based ingredients, is expected to double its global revenue from approximately 2.5bn DKK ($444m) to 5bn DKK ($888m) under Strategy 2017.
Quota abolition-driven targets
Arla revealed that the main driver behind the revision of its strategic targets is the upcoming EU milk quota abolition.
The EU milk quota abolition was introduced in 1984 to address the problem of over-production in the region. The quotas are, however, set to be abolished in April 2015.
Arla expects that its farmers will produce at least 1bn kilograms of milk per year more once the quotas system is dismantled. According to Arla, this extra milk cannot be sold as profitable products in the EU.