Arla announces drop in profits as milk contract confusion rises

Arla Foods UK has revealed a 10% drop in profits amidst supplier concerns about the milk processor’s new pricing contracts.

Preliminary results for the year ending 30 September show pre-tax profits fell from £20.2m to £18.2m.

According to the firm, rising fuel costs had taken their toll on profits, despite a 6% growth in sales to £1.2bn.

Lurpak and Anchor sales increased by 6%, while sales of Arla’s Cravendale, organic and own-label sales to its top three customers, Asda, Tesco and Morrisons, had also improved.

David Naish, Arla chairman, said the processor expected to increase milk sales to the three supermarkets over the next year.

Dispute

However a £7.2m exceptional charge relating to the contractual dispute caused most interest. Arla declined to comment, but one city analyst suggested it was linked to a pricing dispute with Asda, which buys 40% of Arla’s milk.

Speculation is also mounting that Arla Foods’ Scandinavian parent company Arla Foods Amba, which owns 51% of the company, will make a bid to take full control by Christmas.

Arla Foods refused to comment on the sale. It also declined to confirm whether or not Arla Amba has threatened to veto a proposed final 0.8p/share dividend payment unless a takeover deal had been recommended to shareholders by its AGM at the end of January.

Baffled

Tom Hind, NFU chief dairy advisor, said the takeover could be good news for farmers, but criticised the processor for leaving its producers confused about the latest changes to their supply contracts.

“I don’t understand the seasonality schedule and I think farmers are right to be baffled by it,” he said.

“If farmers want to expand they are limited to so – they will only receive a fixed price for a core milk volume, so expansion will come at a cost for them.

“The NFU’s legal team are looking into farmer’s complaints about the contract,” he added.

‘Ridiculously complicated’

Quota broker Ian Potter agreed the new contracts were difficult for producers to understand.

“I don’t think farmers have looked at the contract and the issue of expansion and understood what it means for them,” he said.

In a letter to Farmers Weekly, Arla supplier David Halhead said the ‘market-related’ pricing structure was ridiculously complicated and bore no resemblance to the retail price of milk, cheese or other dairy product.

Are you confused by your contract with Arla? Do you think you are getting a fair price for your milk under the new pricing structure? Have your say at our forum.

Related links:

Arla Foods
Arla Foods UK