Arla Foods amba’s owners, the Danish and Swedish milk producers, are set to increase their investments in Arla in order to achieve the aims of Strategy 2015. “As each co-operative owner could spend the money back at their farms, this should motivate us further to prove that we deserve the confidence they’re placing in us and that the money will be well spent,” says CEO Peder Tuborgh.
At the Board of Representatives meeting yesterday and today, October 6 and 7, Arla’s co-operative owners agreed to support a proposal to double their investment in Arla. The decision is crucial for the implementation of Strategy 2015.
The 7,700 Danish and Swedish milk producers who own Arla Foods amba will have to raise a total of DKK 4.4 to 5 billion. This means that over the next six years, each co-operative owner must invest (consolidate) twice as much as they have been used to.
“Our owners have made an important decision,” CEO Peder Tuborgh said. “Although each co-operative owner could spend the money back at their own farms, they believe in Arla and support the company and Strategy 2015. This should motivate us further to prove that we deserve the confidence they’re placing in us and that the money will be well spent.”
A vote of confidence from owners under pressure
To date, each owner has yearly consolidated 5-7 Danish øre per kg milk. In future, consolidation will be around 10-11 øre per kg.
But why are co-operative owners willing to invest in Arla when they are under financial pressure at their farms?
Chairman Ove Møberg“This is a vital vote of confidence. Many farms are under huge pressure and I meet farmers who are very squeezed. The reason they support the increased consolidation is because they believe that this is an investment in a strong milk price going forward,” stated Arla Foods’ chairman Ove Møberg who represents the 7,700 milk producers.
Cooperative owners will be very focused on whether the increased investment will, in fact, lead to a higher milk price.
“Over the past six months, we have visited milk producers in all corners of Denmark and Sweden to explain the aim of the strategy and why it requires greater financing and why the Board recommends that we milk producers invest more in the company,” says Ove Møberg. “If the strategy cannot be implemented, the company will fail to grow and that will negatively affect our milk price.”
One of the first issues clarified during discussions about the future capital structure is that Arla Foods remains a cooperative. If Arla were to become a limited company, the co-operative owners would have to share influence and profits with external investors. The Board believes that this is not the way forward.
Facts: Consolidation in Arla Foods
- The performance price is a key figure for Arla. This includes everything that Arla has paid out for milk during the year as well as the year’s profits. The performance price is based on the amount of milk (in kg) supplied by the owners during the preceding year.
- The aim going forward is to consolidate 4.5 per cent of the performance price. The consolidation is part of Arla’s equity.
- Some of the consolidation is listed by name. Individual owners receive this when they leave Arla. Under the new model, one third of the consolidation must be by name.
- Under the new model, two-thirds of the consolidation must be collective, i.e. that the money stays with Arla and is never paid to the co-operative owners.
Consequences for the average
- For the average Danish co-operative owner, this means an investment of around DKK 110,000. The overall turnover for such farms is around DKK 2.5-3 million.
- For the average Swedish co-operative owner, the investment is around SEK 75,000 per year. The overall turnover for such farms is SEK 2.2-2.5 million.