Arla CEO says world dairy market in crisis

Copenhagen | Reuters –– Arla Foods, one of Europe’s biggest dairy companies, said on Wednesday the global milk market was in crisis due to oversupply, but it expected demand, particularly from China, to pick up at the end of the year.

Headquartered in Denmark, Arla is Britain’s largest and the world’s seventh-largest dairy company. It reported net profit falling nearly eight per cent to 295 million euros (C$451 million) on revenue of 10.3 billion euros in 2015.

Rising European milk production following the scrapping of EU milk quotas combined with China’s slowdown in demand and a Russian embargo on European foods have put downward pressure on milk prices and prompted protests by farmers.

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“Our annual results show that the dairy industry is in a global crisis. There is more milk supply in the market than demand can absorb,” CEO Peder Tuborgh told Reuters.

The GlobalDairyTrade (GDT) benchmark milk index showed milk prices are down 65 per cent since a peak in April 2013.

Tuborgh expects an upturn at the end of 2016 when China, the world’s biggest importer of powdered milk, will need to start increasing imports, having depleted its stocks although a game changer would be Russia lifting its import ban.

Arla Foods has mitigated the impact of low milk prices by moving more into added-value products — turning milk into more expensive goods such as its Lurpak butter and Castello cheese.

On Monday, France failed to secure more relief measures from the European Union for its struggling farmers, as it tries to contain domestic protests.

France initially favoured lifting the price at which milk producers can sell into public storage but many EU member states were against, recalling times when this led to stockpiles of “butter mountains” and “milk lakes.”

Rabobank dairy senior analyst Kevin Bellamy said in his latest quarterly report that international dairy prices stabilized in the fourth quarter but failed to show any real signs of recovery.

He expected stocks to approach normal levels by around mid-year, saying “Pricing pressure will still build over our (one-year) forecast period.”

Two of the world’s largest dairy companies, Switzerland’s Nestle and France’s Danone, will publish full-year results on Feb. 18 and Feb. 23 respectively. Arla is owned by 12,500 farmers in seven northern European countries.

Ole Mikkelsen is a Reuters editor based in Copenhagen.

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