In a year-end update issued today, Arla Foods UK highlighted that it experienced “significant” inflationary pressure and rising costs throughout 2022. Its revenue jumped 17.5% in 2022 to £2.6bn, driven by price increases to allow the cooperative to increase the farmgate milk price after production costs reached “unprecedented levels”.
However, as the cost of living crisis worsened and cash-strapped consumers traded down, Arla’s total branded sales took a hit following two years of high growth during the pandemic, with a 7% decline vs 2021.
The company noted that positive momentum continued in its Foodservice division, with Arla Pro growing by 17%. This was driven by channel and category expansion as the market continued to recover from the Covid restrictions.
Arla achieved a net profit allocated to its farmer-owners of €382m, or 2.8% of revenue, which is at the bottom end of its target range of 2.8-3.2%. Profit was driven by high margins on commodity products, which, together with high production costs, put retail and foodservice margins under pressure.
“As we saw in the first half of last year, inflationary pressure and uncertainty for us and our farmer owners continued to dominate, as we saw the cost of producing milk soar to levels we have never seen before,” said Ash Amirahmadi, Managing Director of Arla Foods UK.
“For us, balancing increased returns to our farmer owners to enable them to keep producing milk, whilst ensuring our nutritious dairy products remain accessible and affordable for shoppers was a key priority that we had to face to into.”
He added: “There is no doubt that 2023 will continue to present volatile economic conditions and we will continue to navigate these conditions with the best interests of our farmers and our shoppers at the heart.”
Total revenue across the Arla Group increased by 23.2% to €13.8bn, with growth almost exclusively driven by increased prices. The company noted that stagnating supply and steady demand drove up commodity and retail prices, which contributed positively to the increase.
Looking ahead, group CEO Peder Tuborgh said: “2023 will undoubtedly be another difficult year with the challenging economic environment globally and the ongoing effects of the war in Ukraine continuing to impact the energy market and supply chains.
“We are currently seeing some easing of cost pressure on farmers, and as a result we expect the supply and demand balance to be restored on the dairy market over the course of 2023. Commodity prices, however, began a sharp decline during the fourth quarter of 2022, and we expect further decrease on the commodity markets in 2023. We also expect to see a continued slowdown in branded growth due to reduced buying power of consumers and fear of recession.”
