The company said it is reacting to the continued decline in milk volumes as well as the increasing competition for yellow cheese in international markets.
"The challenge in Sweden is to fill our dairies,” said executive vice president Jais Valeur.
"To avoid empty plants a few years down the line we have to react now, if we don't, production costs will be higher and the milk price paid to our owners will fall. And that's not in our interests," he said.
The plans could also lead to the closure of two of Arla's dairies in Klovborg and Hjørring, Denmark, . The company said this will be decided by Arla’s Board of Directors at a later meeting.
Falkenberg's cheese production will be transferred to Arla’s Nr. Vium Danish dairy which will benefit from an expansion programme, costing DKK 125m over the next twelve months.
Over a three period, the company will expand its Taulov dairy, which Arla claims will result in more efficient production, improved competitiveness and secure employment in Denmark and Sweden.
After the DKK 615m investment, the Taulov plant will reach production of up to 45,000 tonnes of cheese per year, increasing the capacity by more than 60 per cent.
The capacity at Nr. Vium will go up to 59,000 tonnes, which is equivalent to a 34 per cent increase. Arla said this will allow it to produce cheeses at lower costs, improving its international competitiveness.
”These changes will create a sound future for Arla's yellow cheese production," said Valeur.
"Around 25 per cent of Arla's milk is currently used for cheese-making, so this is an important business area for us which we will have to develop and be competitive in,” hesaid.