Middle East acquisition strengthens supply chain efficiency for Arla Foods

Parts of the production at three Arla Foods sites will be moved to newly acquired site in the Middle East as part of the farmer-owned company’s aim to bring new commercial opportunities to customers as well as its ongoing efforts to make its supply chain more efficient.

The move is not expected to take place until late 2020 and mid-2021, but Arla Foods is announcing the change in advance time to ensure a smooth and transparent transition as well as timely solutions for affected staff.

In December 2018, Arla Foods (“Arla”) announced an agreement with American multinational confectionery, food, and beverage company Mondeléz International (“Mondeléz”) to acquire its processed cheese business in the Middle East region, which is currently licensed under the Kraft brand. This deal was formally completed on May 28th, and Arla has now taken over the acquired operations.

The acquisition also gives Arla full ownership of a state-of-the-art cheese production site in Bahrain, which provides Arla with the opportunity to further expand the company’s branded cheese production in the region Middle East and North Africa (“MENA”) and to further improve overall efficiency in its supply chain.

Moving selected production lines to new site
Following the acquisition Arla is now announcing its decision to move certain processed cheese and sterilized cream production lines from its Bislev and AKAFA sites in Denmark and from its Riyadh site in Saudi Arabia – all to the newly acquired site in Manama in Bahrain.

There are still a number of factors that can change the final numbers, however it is Arla’s current estimate that the following volumes will be moved:

• Approx. 26,000 tons (annually) of processed cheese from Bislev, potentially impacting approx. 40 jobs
• Approx. 18,000 tons (annually) of sterilized cream from AKAFA, potentially impacting approx. 35 jobs
• The volumes of processed cheese to be moved from Riyadh is still to be confirmed.

“It makes a lot of sense for us to place the production of these exact products at the newly acquired site in Bahrain, since these products are primarily made for the Middle East and North Africa and in lesser degree for other markets. It gives us a strong regional supply chain footprint that enables us to secure long-term competitiveness in the region through scale and efficiency, and the pilot plant at our new Bahrain site will allow us to innovate in new ways within this category,” says Head of Supply Chain in Arla, Executive Vice President Sami Naffakh.

Located in Manama, Bahrain the newly acquired site currently has a capacity exceeding 66,000 tons. Built in 2008, it includes an on-site innovation pilot plant and has won multiple awards for manufacturing excellence within core cheese categories. By moving the production of processed cheese and sterilized cream to this site, Arla also expects to improve the shelf-life of these products by 4 weeks as transport time to customers in MENA is reduced significantly.

Helping employees move on
Today’s announced changes will not be fully implemented until late 2020 and mid-2021. However, Arla has chosen to inform employees at the three affected sites now and they were notified about the decision earlier today.

"It is important for us to be as open about the future as we can be with our employees, and since the coming months will require a high degree of involvement of staff at each affected site we have decided to inform our employees now about the decision to move parts of our production to the new site in Bahrain,” says Sami Naffakh.

“As soon as we are able to confirm the exact volumes that will be moved, we will engage with affected employees to ensure they are supported to move on in a good way, either to jobs at other Arla production sites or outside Arla. We have a good track record of finding ways to help people into new job opportunities, especially when there is a relatively long time period of time in which to work this out. They can bring valuable production expertise to our other sites, which is an opportunity we do not want to miss," says Sami Naffakh.

Facts about Arla Foods’ business in MENA
The Middle East and North Africa (MENA) is one of the key geographical regions in Arla’s strategy, Good Growth 2020.

Since 2010 Arla has more than doubled its sales organically across the MENA region, which is the company’s largest market outside Europe, through strong positions in cheese under the Puck® brand, butter and spreads under the Lurpak® brand as well as milk powder and UHT milk under the Dano® and Arla® brands.

In 2018, Arla’s retail and foodservice revenue in the MENA region reached EUR 560 million.