Dairy giant Arla Foods is to cut €400m of costs from its global business in a bid to counteract commodity price volatility and sharp cost increases since the Brexit vote.
Currency fluctuation and an increase in dairy commodity prices was costing the dairy co-op between €100m and €150m a year, Arla said, as it introduced its new cost-cutting programme ‘Calcium’ today.
Savings would take place across “all areas of the company”, from production to promotion, over the next three years, said CEO Peder Tuborgh. This would support the business’s Good Growth 2020 strategy, which aims to increase milk production by 15%, alongside opening up new markets.
“At Arla Foods we have always had a culture and strong track record of creating efficiencies and removing costs for the benefit of our farmer owners, customers and consumers, so in that sense nothing is new,” he added.
“What is new, however, are two unexpected developments that have hit us, both of which are outside of our control. These are the currency impact of Brexit on our actual performance and the impact of the reversal in commodity prices on fat and protein on our relative performance against our international peers.”
These developments had negatively affected Arla’s profitability, Tuborgh said, and prompted it to act to cut costs. However, the supplier was tight-lipped over the actual detail of the cuts and whether they would lead to job cuts or the closure of any facilities.
The cost-cutting programme would not affect Arla’s UK investment plans, however. Arla said it would plough £72m into its British business in January, while the co-op also agreed to acquire the Yeo Valley dairy business earlier this year, as it sought to cash in on growing demand for organic produce.
The cash injection is part of a £460m global investment to meet targets laid down in the Good Growth 2020 strategy. The investment programme complemented the new cost-cutting move, Arla said, which was designed to increase returns to its 11,500 farmer owners.
A spokeswoman for Arla Foods UK said: “This is happening across Arla in all our markets. It is across all parts of our business – It will cover all activities from production, products, procurement, promotional marketing. It is a holistic approach we are taking.
“The Calcium programme will effectively allow us to further increase investment in the future. Our commitment to the UK market is still very much the focus and the drive. A transformation programme like this is not uncommon – it will allow us to improve efficiencies across our business and further improve returns to farmer owners.”
Arla generates about 25% of its sales in the UK and sources 75% of its product for the UK market in the country.
In 2017, the company recorded an 8.1% rise in global revenues to €10.3bn, driven by higher sales prices, but saw gross profit fall 5% to €2.28bn.
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