Boom in home baking bolsters Arla’s 13th payment

Arla’s 2,240 UK producers are set to receive a supplementary 13th payment worth about 1.58p/litre, after the farmer-owned business reported a rise in revenues during the Covid-19 pandemic, in part down to a boom in home baking.

The co-op’s board of directors has proposed that the share of profits paid out to farmer owners should be 1.75 eurocent/kg milk (about 1.58p/litre based on an exchange rate of £1= €0.903).

This is significantly higher than the average 13th payment, which tends to be around the 1 eurocent/kg mark.

This proposal will be voted on by Arla members during the final week of February.

Rise in home consumption

The co-op has said that while 2020 was a year of volatility and global disruption because of Covid-19, it quickly adapted to meet the spike in home consumption, ceasing or cutting production of some sub-brands.

This means that UK revenues grew from £1.95bn in 2019 to £2.12bn in 2020.

This increase came from a 13% growth in revenues from branded products and 4% volume-driven growth in revenues from its own-label offering.

It was a similar picture across the global Arla business, with global branded sales volumes growing 7.7%.

Ash Amirahmadi, Arla Foods UK managing director, said: “Our branded business increased when consumers turned to food products they trusted during lockdown.

“This was seen most significantly in branded butter when the nation searched for quality ingredients for baking.

“But it was the volume growth and the support of our retail customers that enabled us to flex our business and ensure the public had access to dairy when lockdown drove a significant increase in retail demand, particularly for own-label milk and cheese.”

Stable milk price

The business delivered a stable milk price to its farmer owners across the year, meaning members did not face the significant volatility that hit other parts of the dairy industry when demand from the foodservice sector collapsed.

However, the UK business was facing “precariously balanced scales of challenge and optimism” for the year ahead, said a statement.

Where was growth strongest

  • Cravendale +23%
  • Lactofree +11%
  • Anchor +9%
  • Lurpack +15%

Figures show changes in volume-driven revenue growth.

The Brexit deal had prevented significant disruption and financial loss for the business, but it involved new ways of working that will add some cost to the business overall.

It was too soon to know the full impact when adjustments were still taking place, said the co-op.

There was also coronavirus uncertainty to be factored in, with measures such as private site testing and full pay for workers needing to self-isolate all required to keep the UK’s 10 production sites in operation.

Meanwhile, farmers were facing an estimated 6% increase in their costs of production this year because of last year’s poor harvest and very wet weather.

“As a co-operative, ensuring Arla derives the most value for its farmers for the milk they produce is crucial to Arla’s commercial decisions,” it said.

“This will be even more challenging in 2021, as ensuring a fair price for farmers will become increasingly pressured by the additional on-farm costs farmers are facing.”

Ensuring farmers were receiving the best possible price for their milk was also important if the business was to meet its targets on cutting carbon emissions, given it will directly impact the extent of the efforts farmers can make on farm, it added.

Arla’s full annual report will be published at the end of February.

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