Arla UK revels in branded dairy rise

By Chris Mercer

- Last updated on GMT

Related tags: Arla, Milk, Arla foods uk

Arla Foods UK has announced promising progress for the year but
warned farmgate milk prices were likely to fall and consumers will
have to pay more for steep input cost rises.

The dairy processor said it had "gained ground on every battlefield in which we are engaged in the dairy category"​. Sales rose 4.6 per cent to £1.32bn.

The group highlighted particularly strong growth from the spreadable and low-salt spreads within its Lurpak and Anchor butter brands. Lurpak is now valued at £157m, with Anchor passing the £100m barrier for the first time.

The Cravendale fresh milk brand has also taken off this year and Arla has extended the range to include flavoured products, called 'Cravendale Hint Of…'. It plans to launch one-shot versions for consumers on-the-go in January.

Added value ranges are continuing to develop, although analysts recently put Arla's main rival Dairy Crest ahead in this area.

Arla plans to add Danish Blue with fruit to its Rosenbourg cheese range next year, meanwhile the group has opened what it calls "Europe's most technologically advanced milk processing facility"​ near Leeds.

The main problem at the moment, and one with the potential to unravel Arla's progress, is the rise in energy and packaging costs.

The group managed to deliver profit in-line with expectations after warning in August that costs would dent results, even though the firm bagged better supermarket milk supply contracts than ever before earlier in the year.

But, cost rises remain a major challenge for all of the UK's big dairy processors. Arla said prices for its main packaging material, HDPE resin, had risen 30 per cent since July to more than £850 per tonne.

The group added that diesel fuel costs were likely to be up £2m this year, while it expected gas and electricity bills to be 40 or 50 per cent higher for the same units it used last year.

More of the burden for this is likely to find its way to consumers soon.

Sir David Naish, Arla UK chairman, said the group was seeking to increase selling prices to "reflect the realities of substantially increased packaging and fuel costs"​.

Milk price increases negotiated with supermarket customers at the start of the year successfully helped Arla to offset energy and packaging cost rises in February and March.

Analyst David Hallam, of William de Broe​, recently told​ that rising input costs in dairy would inevitably get passed on to consumers to try and save processor profits.

Arla chairman Naish said the European Union's Common Agricultural Policy reform and market competition also meant there would be "downward pressure"​ on Britain's farmgate milk prices; the subject of up-coming farmer strikes in December.

Arla's rival Wiseman has already said it is likely to cut prices in the New Year, although Dairy Crest pledged to maintain current prices until March.

Arla, on the plus side, said it was a year ahead on its cost-savings programme, and was already saving more than half of the £20m annual savings it expects to achieve by the time the scheme is complete.

Related topics: Manufacturers, Arla Foods

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