Further falls in the milk price likely

Although the first quarter results are largely in line with the budget, the falling dollar and stronger competition in Scandinavian markets mean that Arla Foods’ budget targets for the first half year are unlikely to be met.

”Everything points to the fact that, in addition to the reduction of 4 Danish øre, which is already accounted for in the budget, there may have to be a further cut in the on account price,” said Group Finance Director Jørn Wendel Andersen.

With the current dollar rate 50 øre below the budgetted rate of DKK 6.50, the dollar has impacted on Arla Foods’ substantial exports of milk powder, cheese and butter to a number of overseas markets. In addition, competition has hardened in the Scandinavian market to a point where Arla Foods expects to see losses running into millions of DKK in the Danish and, in particular, Swedish markets.

In both these markets competition from foreign-based rivals and emerging discount chains is putting prices under pressure. Consequently, Arla is initiating a range of counter measures such as the launch of DanMælk liquid milk in Denmark.

On the positive side, a series of price increases have been implemented in the UK market where sterling has recovered against the Danish krone.

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