Arla says boycott losses to hit €53m
will cost it at least €53m this year, as the firm tries to remain
positive about the long road to recovery.
Arla said losses could rise further and that the €53m figure assumed its cheese and butter products would be back on shelves soon, and that 50 per cent of pre-boycott volumes could be recovered by the end of 2006.
The Scandinavian dairy group is currently selling surplus milk at a loss for use as industrial butter and milk powder.
Arla ceased all production for its key Middle East markets, worth around €429m in sales every year, after finding itself at the centre of a near total boycott of Danish products in the region.
Muslims there were incensed after local media reports showed cartoons of the Prophet Muhammad, published by Danish newspaper Jyllands-Posten. One cartoon showed Muhammad wearing a bomb-shaped headdress.
Peder Tuborgh, Arla's managing director, said he believed Arla had a future in the Middle East. The firm has been there for 40 years and has made good progress with brands like Lurpak butter and Puck cheese.
Yet, both he and Finn Hansen, Arla's executive director, admitted a few weeks ago it could take years to recover the firm's pre-boycott market position.
The group had been planning to double sales in the Middle East by 2010, via a multi-million Danish Kroner investment that would include factory extensions and a pilot plant to test new products and packaging.
Arla's disappointment, however, could turn opportunity for other dairy firms, with the Middle East seen as a key growth region.
French dairy group Danone, already the regional market leader, could almost double its current market share to 18 per cent by swooping on Arla's cream sales, according to a report by market research group Euromonitor.
Nestlé could also eat into Arla's milk powder business. Both these firms have survived the boycott relatively unscathed because, unlike Arla, neither use national origin as a marketing tool, the report says.
Domestic dairy companies could also prosper. In another food sector, Coca-Cola has already seen Middle East sales under pressure from local alternative Mecca Cola.
The positive for Arla is whether these firms can fill the void fast enough. The firm reported earlier that some grocers had returned its products to shelves due to stock shortages.
