Arla earmarks up to 500 mEUR annually for rewarding climate activities on farm

Arla Foods introduces a sustainability incentive to its farmer owners to help fund and motivate actions required to hit the 2030 emission reduction target on farm. Arla earmarks up to 3 eurocent per kilo of milk for sustainability activities in addition to the existing 1 eurocent for submitting Climate Check data. Based on the cooperative’s current milk volume, this corresponds to a total of up to 500 mEUR annually.

Two years after implementing a comprehensive Climate Check on 8,000 farms across seven European countries, Arla farmers are taking another significant step to be at the forefront of environmentally sustainable dairy. From next year, the milk price that the individual Arla farmer will receive from the dairy cooperative will depend on his or her activities related to environmental sustainability.

The cooperative is introducing a point-based Sustainability Incentive model, building on data from the Climate Check, to reward current and future sustainability activities on farm. The Board of Directors is putting up to three eurocent per kilo of milk on the table annually to fund and motivate environmental improvements on 19 levers. The full incentive package includes the one eurocent that farmers will receive for submitting their Climate Check data. In the first full year, at least 270 mEUR is expected to be distributed through the monthly milk price based on what the farmers are doing on 19 levers in the model.

“The Sustainability Incentive model is a historical milestone in Arla’s transition to more sustainable dairy. We are introducing an advanced and ambitious sustainability incentive, which is a fundamental change to our milk price model. Going forward, the milk price Arla farmers will receive for their milk will not only depend on fat, protein and quality, it will also depend on their activities on sustainability. The support from our members, even in a time of great uncertainty, is a testament to our commitment to be at the forefront of progressive dairy farming and set the standard for how to push our whole sector forward,” says Arla’s Chairman Jan Toft Nørgaard.

The three eurocent comes on top of the one eurocent that farmers receive for submitting their Climate Check data, which is a pre-condition and the foundation for calculating the individual farmer’s incentive. Based on Arla’s current owner milk volume, the four eurocents per kilo of milk amounts to an annual 500 mEUR that Arla’s Board of Directors are willing to take from Arla’s milk price and re-distribute to the farmers based on their individual points in the Sustainability Incentive model. With the current milk price, it corresponds to approx. 7% of the milk price.

“The Sustainability Incentive will be an effective tool for driving further improvements. Arla farmers have made great progress already, however, they also recognise that they need to accelerate their efforts to be at the forefront of environmentally sustainable dairy. With this historical step, we will stand stronger in the market and send a clear message to our customers and consumers that the necessary change comes at a price for our owners and that a fair amount of the money you pay for Arla products is directed to the farmers who take the most action,” says Peder Tuborgh.

A point-based system

The model is a point-based system, in which the farmers can collect points based on their activities on the model’s 19 different levers e.g. feed, protein and fertilizer efficiency, manure delivery to biogas, biodiversity, carbon farming and use of renewable electricity and deforestation free soy.

80 points will be available from the start in 2023 and further 20 points for new levers are expected to be built into the model within a few years, leading to a total of 100 points. For each point that the farmers are able to achieve, they will receive 0.03 eurocent per kilo of milk. Activities with bigger improvement potential for climate and nature will lead to the most points – and therefore also the biggest financial incentive.

In the first full year, at least 270 mEUR is expected to be distributed through the monthly milk price based on what the farmers are doing on the 19 levers. The number is based on data from the 2021 Climate Check and corresponds to an estimated average of 39 points or 2.17 euro-cent per kilo of milk for achieved points, including the 1 eurocent for submitting the Climate Check data, which is a pre-condition.

For an average Arla farmer with an average annual milk production of 1,2 million kg, it means that approx. 26,000 euro of the milk price is achieved based on his or her activities related to environmental sustainability. However, the average pay-out might increase even for the first year, as some farmers are expected to go for as many points as possible from the start, e.g. by shifting to renewable electricity during 2023.

Support across Arla’s farmer cooperative

Arla’s Board of Directors has engaged heavily in the development of the model to ensure that it has maximum impact as well as fairness across our various farm types and systems. Since August, a proposal has been thoroughly discussed broadly in Arla’s farmer community.

“All our members’ ideas and feedback have been registered and taken into account, some of which are reflected in the model we are presenting today. I am proud that across our cooperative, despite inflation, labour shortage and supply challenges, members have supported that it’s time to financially incentivise sustainability improvements,” says Jan Toft Nørgaard.

It is voluntary if the farmer wants to go for the incentive or not. However, 95 per cent of Arla’s farmers, representing 99 per cent of Arla’s owner milk pool, have already registered their data in the 2022 Climate Check. Their points on some of the levers in the Sustainability Incentive model will therefore automatically be calculated and rewarded.

The first incentive payment will be paid out as part of the monthly milk price in August 2023, based on milk delivered in July. It will be calculated based on the data available from the 2022 Climate Checks and any additional documentation that the farmer has uploaded, e.g. a purchase agreement for renewable electricity or deforestation free soy.

Five things to know about Arla’s Sustainability Incentive model

1. The Sustainability Incentive model rewards both current and future activities and includes levers relevant for the different farm systems in the Arla cooperative. Farmers are rewarded for past activities as these have contributed to lowering Arla's total CO2e emis-sions through the years, and it’s important that these activities will continue.

2. It’s a point-based model, in which activities on 19 different levers are rewarded with points. 80 points will be available from the start in 2023 and further 20 points are set aside for more levers, which means that a total of 100 points is expected to be available within a few years.

3. Each point that the farmer achieves, depending on his/her level of environmental sustainability activities, will trigger 0.03 eurocent per kilo of milk. The levers with the biggest impact potential will trigger most points.

4. From the start, the Sustainability Incentive model has a strong focus on climate activities and will amongst others motivate some of the most impactful, feasible and cost-efficient activities to deliver the 30% emission reduction target by 2030. As the sustainability agenda and science matures, more options will be included in the model.

5. The lever categories that farmers can score points on include:

• Manure handling
• Use of sustainable feed
• Use of renewable electricity (on-farm production or purchase of certificates)
• Biodiversity & Carbon farming activities
• Knowledge building

And also the levers in our Big 5:

1. Feed efficiency
2. Fertiliser use
3. Land use
4. Protein efficiency
5. Animal robustness

Arla Foods' scope 3 target is to reduce GHG emissions 30% per tonne of standardised raw milk and whey by 2030 from a 2015 base year.

If you want to know more about Arla’s and its farmer owners’ activities to drive down emissions using data and levers such as Big5, read more in a new report published today by Arla here: https://www.arla.com/company/news-and-press/2022/pressrelease/2022-climate-check-report-is-now-published/)