Outside Europe, the Middle East was the main export destination for the Danish/Swedish dairy, with Saudi Arabia the largest single market. The scale of the problem quickly became apparent. Products - including its flagship Lurpak butter - were removed from the shelves of 50,000 stores and the company estimated that it was losing £800,000 a day at the boycott's peak. In its interim results this August, Arla's financial director said the company faced losses in the region of $69m.
Arla's experience may be an extreme example. But it highlights an important side effect to the growth of ethical consumerism - the rise of people power. Whether organised by interest groups or undertaken by individuals acting under their own volition, boycotts are on the increase.
And they are proving to have increasingly long-term repercussions, which are not just costing the grocery industry big bucks, but wreaking damage to retailer and manufacturers' brands.
The Co-operative Bank's most recent annual ethical consumerism report found that 28% of consumers had boycotted at least one food product for ethical reasons in 2004, at a cost of £989m to grocery brands and £958m to food stores, the former figure representing an 8.2% uplift on the previous year. The figures are likely to be even worse in this year's report, due out in December. According to the findings of a global poll by GMI, more than a third of consumers worldwide said they had boycotted at least one brand with Nestlé and Coca-Cola among the most boycotted brands.
As far as country boycotts go, Denmark is not alone in being targeted. One of the longest-running campaigns has been against Israel. The boycott is supported not just by activist groups and individuals acting alone but also entire governments. Iranian TV even produced an infomercial urging consumers to stop buying "Zionist" products such as Pepsi and Coca-Cola and shopping at stores with Jewish links, such as Marks and Spencer. Canada is another country to feel the boycotter's wrath, as a result of its policy permitting seal clubbing.
But the campaigns that are by far the most prevalent and potentially harmful are those aimed at individual companies. A number are currently subject to boycotts (see p34). One of the most high-profile and long-running boycotts is of Nestlé for what pressure group Baby Milk Action (BMA) describes as its "aggressive marketing of babyfoods".
Mike Brady, campaigns and networking coordinator at BMA, says that the campaign has been a "very effective marketing strategy promoted by word of mouth".
It is impossible to substantiate how hard the boycott has hit Nestlé in the pocket, but Brady says: "One way to measure the impact is the large amount that it invests in trying to counter the boycott and how much attention the Nestlé management give it."
Nestlé is, of course, quick to refute such claims. A spokeswoman says: "As a company we believe in dialogue and engagement - this is how we conduct our business, which over the years has, and continues to be, successful, demonstrating that the boycott has not made a difference to our business."
The boycotters' line of attack can be tenuous. Kimberly-Clark was recently the target of animal rights activists who put stickers on Andrex products urging consumers to avoid the company's products on the grounds that some were tested on animals.
Yet, says a Kimberly-Clark spokeswoman: "We don't test any of our consumer products on animals. There are, however, some cases where we are required by law to list specific tests before a product can be brought to market. We only test on animals if legally required to do so and look forward to one day eliminating the need for animal testing altogether."
The spokeswoman says consumer concerns are always taken seriously. "We would always listen to any concerns they might have. Furthermore we have dialogue with some environmental interest groups, which helps us develop our socially responsible business practices."
By doing this, the company has also been able to shield itself from the impact of boycotts, she says.
Sometimes, the grocery industry can find itself on the side of the boycotters. Respect for Animals wants a boycott of Canadian seafood products to increase pressure on the Canadian government - to bring an end to the slaughter of seals.
In the early 1980s a similar boycott of Canadian seafood products was backed by UK supermarkets and led the Canadian government to ban the killing of white coat seal pups. However, today the seals are left for a few days until they begin to moult and are no longer considered white coat, which allows sealers to sidestep the ban.
Respect for Animals campaigns director Mark Glover says boycotts are mostly undertaken as a tactic of last resort. However, he hopes the current campaign will see similar results to the original boycott in the 1980s.
"It was supermarkets such as Tesco and Sainsbury's joining the seafood boycott back then that led to the Canadian government banning the killing of white coat seals," says Glover. "We hope to inflict economic damage on Canadian fish exports and to do so quickly. Sealing is carried out by Canadian fishermen and so boycotting the main source of their income should focus their attention."
This time around, though, the supermarkets are far more wary of getting involved. A spokeswoman for Waitrose says the company wouldn't take part in any boycott because it "does not and never has supported seal culling under any banner and I can confirm that none of our suppliers are involved in seal culling in any way".
A spokesperson for The Co-operative Group says: "We don't support product boycotts. There are lots of instances where people call for boycotts. We prefer to let our customers make their own informed choice."
While boycotts are powerful tools and can hit companies in the pocket (British anti-vivisection group Uncaged Campaigns claims its actions against Procter & Gamble are costing the company "at least £12m every year in the UK alone"), even those that use them admit that their power to hit companies financially has diminished in relative terms.
Back when businesses were smaller, a boycott involving just a few hundred customers could have a significant impact on a company's sales figures but today's businesses are huge global corporations and boycotts do not wield as much financial impact as in the past, believes Katherine Albrecht, founder and director of Caspian Consumer Privacy, which campaigns against the use of RFID tags that, it claims, "spy" on shoppers.
"However, in the age of rapid communications and the internet, product boycotts serve a powerful new function," says Albrecht.
"A well-publicised boycott can be a thorn in a company's side through the bad publicity it generates.
"It can help inform the public of a company's wrongdoings and clearly tell them that there is widespread and organised opposition to its policies."
The group has already scored successes against Gillette and Benetton through the power of the internet and has now turned its attention to Tesco's use of RFID through its www.boycotttesco.com site.
"On the bad publicity front our boycott of Tesco for its item-level RFID tagging practices has generated a large number of letters to Tesco and prompted many people to stop shopping at the store. While Tesco won't go out of business, it has certainly received a clear message from the public that RFID is unpopular," says Albrecht.
Shoppers tend to be less emotionally engaged with this kind of activity than with animal testing, for example, so Tesco isn't likely to lose too much sleep over this particular campaign - but with a fair amount of anti-supermarket sentiment, it can't afford to be complacent.
That's where a strong CSR programme comes in, says Richard Buchanan, head of branding at consultancy Corporate Edge. Bad publicity generated by product boycotts can swiftly undermine years of brand building, he warns - but the negative impact can be mitigated by a transparent CSR strategy.
He says: "Boycotts are a PR nightmare and can seriously damage your business. Over the past decade there has been a huge shift towards CSR, which is all about being a responsible citizen and is one of the fastest-growing areas in marketing today. As a result all businesses and brand owners need to take it seriously."
He advises businesses to make sure they have ethical policies in place so they aren't caught short in the first place. If they are exposed, they should "act quickly to resolve the problem and be open about what they are doing".
One thing they can't afford to do any longer is dismiss boycotts as the work of crackpots. Gone are the days when the impact of a campaign was short and sharp.
These days, as Arla Foods discovered to its cost, it can be long-term - and very expensive.Boycott Israel
Danish manufacturers may have suffered at the hands of the boycotters, but the campaign is nothing compared with the long-running campaign against Israel prompted by the Israeli-Palestinian conflict.
Activity has intensified since Israel bombed Lebanon and it's not only Israeli manufacturers that are being hit; it's anybody deemed to have an association with Israel.
The 'Victory to the Intifada' campaign has held weekly demonstrations outside Marks and Spencer's Oxford Street store in London for the past six years on the alleged grounds that the high street retailer has "Zionist foundations" and is "Israel's biggest corporate sponsor".
Boycotts of other manufacturers and retailers have also been called for, among them Pepsi, Coca-Cola (according to an Iranian infomercial, 'Zionists are the biggest shareholders in the soft drinks industry'), Johnson & Johnson, Nestlé, Danone, Kimberly-Clark and Sara Lee.Recent boycotts
Coca-Cola Earlier this year a number of UK universities voted to stop the sale of Coca-Cola on their campuses following alleged human rights abuses. Instead, educational establishments such as the University of Sussex intend to stock a variety of "ethical alternatives". The ban followed similar boycotts in the US.
Procter & Gamble Uncaged Campaigns has spearheaded a prolonged boycott against P&G products and claims that its actions cost the firm more than £12m per year in the UK. It plans to hold a global "boycott Procter & Gamble day" next May and urges protesters to carry out "covert sweeps" - or fill trolleys with P&G products, stuff them full of leaflets and then abandon them in store.
Numerous brands The Boycott Bush website advocates that consumers boycott any company that has made large donations to the Republican Party - including Wal-Mart, Pepsi, Coca-Cola and Kraft Foods.
Supermarkets Late last year 4,500 members of the Women's Institute in Cornwall called for a boycott of out-of-town supermarkets in favour of buying groceries from their local shop, generating plenty of column inches in the press.