Arla Foods has conceded the Danish dairy major may be testing the limit of customers and consumers when it comes to upping the price of milk.
The cooperative, reporting its 2022 annual results today (9 February), revealed revenues increased by 23.2% year-on-year to EUR13.8bn (US$14.9bn) with pricing initiatives playing a significant part.
The company’s milk price increased by 40.5% on average in 2022.
Speaking to Just Food after the results were announced, CFO Torben Dahl Nyholm said: “I think customers understand the drivers of it [price increases] but they are also aware of what is happening to consumers and what the price increases signify to those who can’t afford to buy it.
“I think we are testing the limit now. This is an everyday product. It concerns us if consumers can’t afford our products but we need to survive as a business.
“And what is happening to the inflationary environment is hard to predict.”
Dahl Nyholm said that how consumers react when seeing their buying power squeezed is second only to inflation itself in terms of likely headwinds this year.
The Castello cheese and Lurpak butter manufacturer’s net profit in 2022 was EUR382m, up from EUR346m in the previous year.
The company said earnings were pressured by “unprecedented margins on industrial products, which, along with high production costs, put margins in the retail and foodservice segments under pressure”.
Arla reported “soaring production costs as a result of record price increases for feed, fertiliser and energy”.
Growth for the company’s branded products slowed in 2022 as a result of a customer “shift to cheaper products and lower consumption”.
The Cravendale milk brand owner added: “Significant downward pressure on consumers’ purchasing power, particularly in Europe and Africa, has led consumers to both switch to cheaper products and generally consume fewer dairy products. By the end of 2022, demand for dairy products in Europe had decreased by approximately 5% compared to the same time in 2021.”
CEO Peder Tuborgh said: “The soaring cost of living affected us all over the world and has particularly affected our branded products, and although they continue to be an important value creator for our business, revenue from them has fallen by 3.2%.”
Arla expects its branded volumes to decline by 3.5% to 1.5% this year and then to start growing again from 2024.
It expects 2023 revenue to be between EUR13.6bn and EUR14.2bn.
In October, Arla said the price its 8,900 European farmer-members receive for their milk in future will depend on their sustainability credentials.
It said they will be judged on a points system, gaining credits for things like fertiliser use, biodiversity work, renewable electricity and the green credentials of their feed.
