Arla Foods to invest €527m in 2018

31-Jan-2018 - Last updated on 31-Jan-2018 at 07:58 GMT

Arla Foods has announced its biggest investment ever for 2018 as it pursues its 2020 goals.

In the biggest single investment announced in the Danish-headquartered dairy cooperative’s history, Arla Foods says it will invest more than half a billion euros ($656m) in 2018 to deliver on its 2020 growth ambition.

The executive management’s decision to significantly increase the investments of the company was approved at a meeting in London this week by Arla Foods’ board of directors.

The farmer-owned cooperative will invest in new and expanded production capacity as well as innovative technology.

Identifying new projects

Chairman of Arla Foods Åke Hantoft said all investments by Arla Foods are made to secure long-term growth and profit opportunities for the company’s 11,200 farmer owners across Europe.

Hantoft said the board has identified new projects and investments with short and long term potential for significant return.

“The business growth these investments will create for our company will generate growth opportunities for our farmer owners. We see these investments as essential to the future of our business,” Hantoft said.

Having grown the business by 50% in the last decade, Arla, which now operates in 120 countries, is focusing its investment in four key areas, which it said are meeting the growing demand for dairy; healthy and natural products that match consumer lifestyles; leading the way in whey; and sustainable food production that considers the future of the planet.

Beyond Europe

Arla said 50% of the investments in 2018 are targeted projects aimed at growing Arla Foods’ sales outside Europe, where the company’s fastest growing strategic growth markets are Middle East and North Africa, China and Southeast Asia, Sub-Saharan Africa, and the US.

Two-thirds of this year’s spend will focus on increasing Arla’s European production capacity, with €266m ($331m) being invested in Denmark, €82m ($102m) in the UK, €78m ($97m) in Sweden, and €65m ($81m) in Germany, with €36m ($44.8m) for production in other countries.

Peder Tuborgh, CEO, Arla Foods, said the investment plan is aimed at expanding positions in key dairy categories and geographic markets where Arla is already a key player.

New Lactofree production in UK

Arla will use its experience from its Scandinavian markets and a €56m ($70m) investment to lay the foundations for the production of Lactofree products at its Aylesbury site in the UK.

In Southeast Asia and Sub-Saharan Africa, disposable income is increasing and families are increasingly demanding nutritious dairy products. To be able to supply the increasing demand, Arla plans to expand its production site in Pronsfeld, Germany, which supplies milk powder and UHT milk for many of Arla Foods’ strategic growth markets outside Europe.

The investment in 2018 is €10m ($12.5m), with another estimated €180m ($224m) over the next two years.

The project will add another milk drying tower to the existing production of milk powder in Pronsfeld, and construction is planned to start in late 2018, subject to all governmental approvals. It is expected to be ready for production in 2021.

Working with whey

With its subsidiary Arla Foods Ingredients, the company has taken a by-product once cast aside from cheese production and using whey to create value-added whey protein ingredients for food industry customers around the world.

Arla Foods will invest more than €100m ($124.6m) in new technology and capacity expansions for its production of natural whey protein ingredients for the global food industry.

In Sweden, a further €5m ($6.2m) will be invested by Arla Foods to add a whey processing capacity at Falkenberg dairy, which can concentrate whey from the site’s cottage cheese production and add more value through Arla Foods Ingredients.

Renewable energy sources

In line with the targets on sustainability set by Arla Foods in its Good Growth 2020 strategy the investment plan supports 46 projects with a total investment of €15m ($18.7m).

The projects will help Arla Foods reduce its carbon emissions and help the company pursue its goal to ensure that at least half the energy Arla Foods uses must come from renewable sources like biomass, wind and water by 2020.

An example of this is the construction of a large biogas facility by Arla’s dairy site in Nr. Vium, Denmark, which will supply heat for the production of milk powder.

Future climate change boycotts mean this investment will never pay off

Posted by Stuart, 31 January 2018 - 19:30 GMT

Maybe Arla should have invested in plant-based technologies and gotten a better future return? Just like all the offshore oil and gas investments in deep-water drilling that will never be completed due to climate change, by the time this investment has occurred, climate change awareness will ensure the public turns against dairy products.

Why? 16 of the last 17 years have been the hottest on record. Does the dairy industry really think that it will escape the draconian measures that will be enacted in the next few years once the public realizes climate change is for real and that personal dairy consumption is a big cause of it?

People are already cutting back consumption of dairy milk, cheese, whey and beef. What will happen when the majority realize that dairy cows and beef cattle are major sources of the greenhouse gas methane (belching out their mouths) and that by cutting back personal consumption of these products you can have a personal impact, however small, on climate change.

Price will be a factor as well. Methane is 25X worse that carbon dioxide at trapping heat in the atmosphere. Therefore, any carbon pricing that comes in should see methane priced at 25X more than CO2 (to be fair). The dairy industry might be hoping for special treatment but once consumers realize the climate change impact (over and above the environmental costs of dairy farms, etc.) that "special treatment" is likely going to include draconian boycotts no matter what govts and the dairy industry want. Once consumers decide on something, no amount of "lobbying" will affect govt decisions that the public demands.

To drive the point home to the public, methane milk and methane whey will start being priced to include the "methane tax" and this price rise will also affect purchasing decisions. Not a pretty picture - and hey I drink milk, eat cheese, love steak and have whey protein for exercise.

Where does this leave product formulators? Well, if you're formulating with whey, you're taking a big risk. If you're within 2 or 3 years of retirement, you're probably safe. Rest of us better start taking a medium- and long-term view here.

Arla's not the first big company to make major investment mistakes due to bureaucratic momentum. The oil and gas multinationals have made major multi-billion dollar investments in offshore oil and gas that will have to be written off - if those companies survive at all.

To recap, would Arla's 500 million + Euros deliver a better return being invested in a sunrise industry like plant proteins as opposed to a sunset one like dairy? This is the question investors should be asking of all dairy investments by companies like Arla and Nestle. And one that product formulators need to be thinking about as well.

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