16 Jul 2014

Arla insulated from milk price volatility

6:57 am on 16 July 2014

European co-op Arla Foods' large home market of 380 million consumers and strong brands mean it is relatively insulated from current volatility in global dairy prices, the company says.

Arla currently sells 85 percent of its milk to Europe but says it must increase sales outside of its home market to between 20 and 30 percent of its output.

That's because dairy production in Europe is increasing.

To help it diversify its customers, Arla has bought a 6 percent stake in China's largest dairy producer, Mengniu, which gives the company access to sales and distribution channels in China for its brands.

Arla currently sells 85 percent of its milk to Europe.

Arla currently sells 85 percent of its milk to Europe. Photo: AFP

Arla Foods executive Jais Valeur said Arla had more control over the prices of its products because of the strength of its brands.

Arla's main brands are Arla, Lurpak and Castello.

Mr Valeur said a lot of Arla's business is still in brands and retail formats across Northern Europe and that is not quickly impacted by movements in the global of Chinese milk price.

He said Northern Europe would produce more milk in the the coming years because of the deregulation of the European dairy market.

Mr Valeur said in Arla's main markets of Scandinavia, Germany and the United Kingdom there could be increases of about 5 percent in milk production next year.

He said that was quite a lot on the current milk base and Arla expected farmers would expand.

However, the expected 5 percent increase in milk production in Northern Europe next year could be balanced out by lower production in Southern Europe.