Arla poised for more owners in the UK

Arla’s Board of Directors is proposing that the British supplier group, Arla Foods Milk Partnership (AFMP), through its investment arm Milk Partnership Limited, should become co-owners of Arla Foods from 1 January 2014. The aim being to strengthen the dairy cooperative further. Arla’s Board of Representatives will make its decision in October.

From 1 January 2014, the cooperative dairy company, Arla Foods, is set to grow by circa 1,600 British dairy farmers. As a result, Arla will have almost 14,000 owners in Denmark, Sweden, UK, Germany, Belgium and Luxembourg.

Arla Foods Milk Partnership (AFMP), the supplier group, already supplies milk to Arla in the UK, and the group owns part of Arla’s UK business. Arla and AFMP announced in the spring that negotiations concerning co-ownership were already underway.

“Over the years, we’ve enjoyed a good partnership with AFMP, and in the past five-six years, AFMP has not only expressed its wish for co-ownership, but has also demonstrated a clear will to be owners with all that this entails. The members of Arla’s Board of Directors are convinced that having AFMP as part of the owner group will strengthen Arla considerably,” says Åke Hantoft, Chairman of Arla Foods.

It will cost an AFMP farmer 7.5 pence per litre of supplied milk to gain access to Arla (paid over two years).

“They are ready to make the investment,” adds Åke Hantoft. “This is because fundamentally, Arla and AFMP share the same view of the future: we believe that, as dairy farmers, a growing farmer-owned cooperative can give us the greatest security going forward,” says Åke Hantoft.

”The offer presents us with an unrivalled opportunity to become an owner of Europe’s largest, and most progressive, farmer-owned dairy cooperative. Arla Foods amba’s mission is to secure the highest possible value for its farmers’ milk, while creating opportunities for their growth. The company’s track record and determination to continue to develop on the global stage leaves me in no doubt that this mission lives and breathes within Arla. Quite simply Arla Foods amba is a business owned by farmers for the benefit of farmers. There is natural alignment of our interests as UK dairy farmers with the existing dairy farmers who own Arla Foods amba,” says the Chairman of AFMP, Jonathan Ovens.

Stability and opportunity

Initially, Arla’s annual milk supply may not be any larger as Arla already buys AFMP farmers’ milk. But the agreement will increase Arla’s stability and opportunities in the UK market and this is important,” says Peder Tuborgh, CEO, Arla Foods.

”Arla’s strategy is based on growth and the road to growth is more milk. We need milk to continue to meet our customers’ requirements, grow with them and be efficient. All this is a prerequisite in order for us to be a stable partner for our owners and pay them a strong milk price. A stable raw milk supply is crucial for creating growth and profitability: this applies not only to Arla in the UK, but to the whole company,” says Peder Tuborgh.

One British owner group

In line with the AFMP proposal, it is proposed that from the 2014 financial year, Arla Milk Link will receive the supplementary (13th)payment, two years before planned.

“The financial benefits from last year’s merger with Milk Link have accrued faster than anticipated in the business plan, which is extremely positive. Consequently, there is a desire to bring forward our current British owners’ access to supplementary payments, thereby synchronising Arla Milk Link’s and AFMP’s agreements on this point,” says Åke Hantoft.

“Currently there are three groups of milk suppliers in the UK: the owners, AFMP and the direct suppliers. We can see considerable benefit in creating one owner group comprising Arla Milk Link and AFMP. As a result, our milk supply will be more stable and there will be a broader base for consolidating and investing in the company going forward,” adds Hantoft.

The Chairman of Arla’s current British owners in Arla Milk Link, Johnnie Russell agrees:

“These are two very important milestones in the development of Arla’s business in the UK. The original deal with Milk Link, with its 3½ year transition period to full membership, was negotiated on the basis of a historic performance price gap which does not currently exist. Events in the UK milk market since then have been unprecedented and it is no longer appropriate or necessary to have such a long transition period.”

Johnnie Russell looks forward to creating one British owner group providing the decision is taken to include AFMP as owners:

“It will immeasurably strengthen Arla’s proposition in the UK. We will become by far the largest and most important farmer owned dairy business. One group of farmers with a common purpose to develop, with their fellow owners on the continent, the world’s leading dairy business”, says Johnnie Russell.

The process ahead

Arla is a cooperative and the final decisions relating to supplementary payments for Arla Milk Link and membership for AFMP will be taken by dairy farmers at Arla’s Board of Representatives in October. After this, AFMP members will take individual decisions about their future by 15 November.

Facts

• Arla Foods Milk Partnership: 1,250 milk producers and 1.6 billion kg milk. Currently owns 3.15 % of Arla’s UK business.
• Arla Milk Link: 1,500 members and 1.3 billion kg milk.
• Arla Foods in total (2012): 12,250 owners and 10.4 billion kg milk