LONDON (Reuters) - Dairy cooperative Arla Foods ARLAF.UL has nearly doubled the number of British farmers that are owners in its business as the company works to raise sales in international markets like Africa and China, where demand for dairy products is growing.
European farmers are particularly keen to access those markets, since the European dairy industry will see an end to production quotas in 2015. The change is expected to flood the market with new milk that could push down prices.
“That’s why we’re being so successful in attracting new milk at the moment, because farmers are looking to the future and realising that Arla is a good long-term bet,” Ash Amirahmadi, the company’s head of milk, told Reuters.
Arla will announce on Monday that it has added 1,300 farmer/owners in Britain, where it sells leading brands such as Anchor butter and Cravendale milk. That brings its total to 2,800 farmers in Britain, about 3,000 in Denmark, just over 3,000 in Sweden, about 2,000 in Germany, about 500 in Belgium and 200 in Luxembourg.
“The key question for a dairy farmer is, post-2015, what is my plan for where my milk is marketed. If my current milk buyer doesn’t have access to these local markets, or hasn’t got the ability to convert my milk into more premium dairy products, then I am at risk,” Amirahmadi said.
Arla is opening up registration again this month to recruit more farmers’ milk into its supply pool, Amirahmadi said.
In China, whose infant formula market is set to double to $25 billion by 2017, Arla has “massively benefited” from a desire among milk powder buyers to diversify away from Fonterra (FSF.NZ) following this year’s drought in New Zealand and a food safety scare.
“That’s not something that we rejoice in, but definitely the major buyers of Chinese commodity products have wanted to spread their risk a bit more,” Amirahmadi said, noting that Arla already has a venture with China Mengniu Dairy (2319.HK).
“When you’ve already got a stake in a Chinese business and you’ve already got the access to the market, clearly they didn’t have to look very far to find another willing supplier,” he said, declining to provide specific sales figures.
Arla Foods, with annual turnover of more than 2 billion pounds ($3.3 billion), generates three-quarters of its sales from Europe, and the rest from international markets such as China, Africa and the Middle East. It is working to double the size of its international business.
In Africa, Arla runs a mobile factory the size of a shipping container that processes bulk milk powder, fortified with vitamins A and D, into individual 7-gram sachets that are distributed by local vendors.
“We literally cannot make enough at the moment in terms of the demand,” Amirahmadi said.
Editing by Dale Hudson