Arla Foods has reported below-expectation profits after milk prices took a downward turn during the second half of 2008.
Falling exchange rates, consumers buying less or trading down to cheaper products and milk supply exceeding demand in Europe all contributed to full year profits £42m below expectations, Arla reported. Its profits for the year were £66m, though turnover did rise 4% to £5.9bn.
The Danish dairy giant said its UK profits had been hit by a delay in recovering inflationary costs from the marketplace and an attempt to maintain the milk price to members despite falling commodity prices. However brands continued to perform well, with Cravendale sales up 30% and Lurpak up 20%.
“The financial crisis, which has also put the milk market under considerable pressure, has clearly impacted on the year’s results,” said CEO Peder Tuborgh. “Although 2008 got off to a fairy good start, in global terms, the trend over the last six months of 2008 was uniformly downwards, towards historically low milk prices.”
At the heart of its difficulties were its attempts to balance the need to keep the milk price high for its co-operative members, with market pressure to lower them, the company stressed.
However it has now had to relent and Arla was among a number of processors to come under fire from farmers and unions for lowering its farmgate milk price in January.
“The total milk price paid to Arla’s co-operative members in 2008 is good, but this is in strong contrast to the current price which is under severe pressure,” said Tuborgh.