New agreement paves the way for cheese production in Russia

By agreeing on the terms for a joint production of yellow cheese with Molvest Group, Russia’s third largest dairy company, Arla is taking another significant strategic step into the Russian market. The agreement is in keeping with Arla’s ambitions to become one of Russia’s leading dairy companies within yellow cheese.

Following several years of growing exports to the Russian market, Arla now intends to set up local production in Russia for the first time. Production will be centered on the city of Kalacheevsky in south-west Russia where Arla’s Russian subsidiary – Arla Foods Artis – in partnership with the Molvest Group will be converting one of Molvest’s existing dairies to yellow cheese production. The two parties have agreed on terms for joint production at the dairy.

The terms and conditions are subject to approval from the Russian Federal Antimonopoly Service (FAS).

Molvest will be responsible for collecting the milk from farms in the area as well as weighing-in and processing the milk at the dairy. Arla will subsequently buy the milk and with its experience and expertise from its Scandinavian operations will be responsible for the production of yellow cheese at the dairy. The finished products will be distributed and sold by Arla.

For Arla, the conversion of the dairy represents an investment of DKK 25 million.

Prospects of doubling turnover

Arla and Molvest anticipate joint production will begin in early 2013. Initially, the aim is to produce approx. 6,000 tons in 2014, with a subsequent annual volume increase of 10 per cent.

”As Russia is one of our strategic growth markets this agreement is important because it provides us with the opportunity to combine our export business to Russia with local production,” says Arla’s CEO Peder Tuborgh. “This is unlikely to be our final expansion into the Russian market but this agreement alone is expected to double our turnover in Russia before the end of 2015.”

Export benefits

Arla’s Russian business grew by approx. 30 per cent in 2011 to approx. DKK 500 million: growth that was largely driven by exports of Lurpak butter, Castello speciality cheese and cream cheese under the Arla Natura brand. These brands are expected to benefit further from Arla’s new production in Russia.

”The new venture in Russia means that we can offer a broader range and supply larger volumes,” explains Senior Vice President Hans Christensen, who is responsible for Arla’s operations in Russia, Poland and North America. This, in turn, will strengthen our position vis-a-vis the Russian retail sector and grow our exports from Scandinavia to Russia. We’ve already seen similar effects in other markets such as USA, Germany and Canada.”

”Russia is an attractive market for us because of the many consumers willing to pay for good quality,” he adds. “Our ambition is to become one of the leading players within the yellow cheese category in Russia. Combined with our Scandinavian expertise in making high quality cheese, we have strong opportunities for establishing a long-term presence in this rapidly growing market.”

FACTS:

Molvest Group:

• Holding company with Headquarters in Voronezh, Russia.
• Annual turnover is approx. 250 million USD.
• Production at nine dairy sites, one of which is situated in Ukraine.
• Produce and sell dairy products for everyday use, such as liquid milk, butter, fermented milk drinks and cheese.
• Considered Russia’s third largest dairy company within traditional dairy products.

Arla in Russia:

• Russia is regarded as a strategic growth market in Arla’s current Strategy 2015 – along with USA, China, Middle East & Northern Africa, and Poland.
• Annual turnover is approx. 500 million DKK.
• In 2007 Arla Foods acquired 75 per cent of Artis Distribution and cemented its Russian business under the name Arla Foods Artis. The business is focused on selling cheese and butter from Denmark and Sweden.
• Arla’s strategy in Russia is to build strong positions with high quality branded cheese and butter products, focusing on cities with more than 500.000 inhabitants, and to pursue opportunities for local production through partnerships or acquisitions.
• Among the products sold by Arla in Russia are Lurpak butter, Castello speciality cheese and cream cheese under the Arla Natura brand.