The European Agricultural Ministers' decision to reform the European milk market last week has caused a degree of concern among the continent's dairy producers. Arla Foods' managing director Jens Bigum however believes that his firm is well prepared to face the new situation.
"This (the decision) is not something which will favour Arla Foods and its co-operative shareholders," he said. "On the other hand, the outcome is not unexpected. The planned reforms do not differ significantly from what has been expected for a long time so Arla Foods has been prepared for lower intervention prices."
Reform of the European milk market could see the price of butter and skimmed milk powder fall by 20 per cent from 2004. Bigum also believes that lower intervention prices will result in a reduction in milk prices overall.
This could have a knock-on effect on bulk products. Raw material prices, however, will have a lesser impact the more added value the products have. The impact will be least for branded products. Arla Foods operates in all three areas although the emphasis is on increasing the amount of added value.
"Our strategy plan means that we are not among those least prepared for the realities," said Bigum.
The MD believes that the dairy giant is also prepared for a likely increase in demand for profitable the use of fats, pointing to the recent decision to build a milk powder factory in Vimmerby in Sweden.
Bigum also believes that the reforms have positive aspects fro Arla and the European dairy industry as a whole. It is likely that lower EU milk prices could make Arla Foods - and other producers - more competitive in a number of third-country growth markets.