The results exceeded the co-op’s expectations and demonstrated that farmers had carried out more actions than was initially thought possible. Arla had expected to distribute at least €270m/$290m in the full first year of the initiative, but at least €300m/$326 has now been set aside to reward participants. If Arla members continue to adopt sustainable measures at this rate, the co-op stands to pay out €2.2bn/$2.4 by the end of 2030. The expectation is that figure will be much larger as farmers ‘raise the bar significantly higher’ in the years to come.
In 2022, Arla launched the Sustainability Incentive, a voluntary points-based rewards program designed to speed up the adoption of climate-smart measures by farmers.
The program - which pays 2.40eurocents per 1kg of milk to participants if they collect the full points tally - is considered a key element of the co-op’s ambitions to reach its scope 3 emissions target of 30% reduction by 2030. The amount rewarded to farmers is set to go up to 3eurocents in the future, with an extra eurocent obtainable when the farmer submits data through the co-op’s Climate Check online tool.
How does Arla’s incentives system work?
The size of the incentive depends on the individual farmers’ efforts, measured in points. The model awards points for undertaking climate-smart activities such as improving biodiversity, feed efficiency and manure handling across 19 levers. The levers with the biggest impact potential receive the most points - 49 of the 80 available in total currently. Collecting all 80 points would earn participating farmers 2.40eurocents per kg of milk supplied to the co-op, going up to 3eurocents once the full scope of the program – set to be equal to 100 points in total – is implemented. For each point, participants receive 0.03eurocent per kg of milk.
To take part, farmers need to submit data, including about their herd, feed production and energy use, via the Climate Check online tool. Around 95% of Arla farmer owners had done so when the program was first launched. An additional eurocent is obtained for submitting data.
Carbon equivalent emissions from milk reduced by over 2%
At the start of the program, Arla had expected farmers to average 39 points out of 80, but they managed to achieve an average of 48 points based on the initiatives registered by the end of June 2023. This means the co-op paid an average of 1.44eurocents per kg of milk to its farmers, plus another 1eurocent for submitting Climate Check data. For an average Arla farm with an annual milk production of 1.6 million kg, the two amounts in total equal close to €40,000/$43,400 a year, said the co-op.
As for carbon-equivalent emissions from milk, farmers achieved a reduction of 2.4% for 2022, the co-op reported citing data from its Climate Check tool. The improvement is mainly down to producing and using feed more efficiently, as well as using less fertilizer, improving manure storage, reducing energy consumption and shifting to renewable sources of electricity.
The first payment of around €300m in total was distributed on August 14; onwards the incentive will be payable on a monthly basis, updated quarterly.
“Going forward, they will continuously be able to register new activities that may qualify for more points in the following quarter. Each year, following the annual Climate Check, the new data from here will also be part of an updated calculation of points,” said the co-op.
Jan Toft Nørgaard, chairman of the board at Arla Foods, commented: ”Our owners are working determinedly to reduce emissions on their farm. There is a great commitment in our cooperative to show our consumers, our industry and society in general that we as Arla farmers are able to produce milk with an increasingly smaller footprint on climate and nature. It is a significant effort for the individual farmer; however, many are well on their way and together we can motivate each other, e.g. through a financial incentive using our new points-based model. I am excited to watch the level going forward, because with this large engagement we will be able to move really far in a short period of time.”
Arla’s CEO, Peder Tuborgh, added: “The Sustainability Incentive is a large step towards linking economy and climate and nature improvements on farm. Arla’s unique point system makes it possible for us to reward our owners and thus contribute to their large investments in sustainability. At the same time, we strengthen the farmers’ motivation to implement the initiatives necessary for our cooperative to reach its ambitious climate goals for 2030.”