Farmer-owned milk processor Arla Foods UK has posted a 4% increase in net revenues for the first half of the current trading year, despite a fall in volumes sold as it targets higher margin outlets.

The UK operation, some 20% of the overall group revenues, was ahead of the wider Arla Foods amba group, with farmer members across Denmark, Sweden, Germany and the Benelux countries. It returned 3% revenue growth, but with a 50% cut in profitability as raw material prices rose.

Arla Foods UK reports net revenue up 4% in the six months to June 30th, with 10% year-on-year growth in its branded products including Lurpack butter and Castello cheese. There was a 15% increase in Arla-brand product sales, especially Arla yogurts – Arla brands topped retail trade magazine The Grocer’s list of the 100 fastest growing UK brands in March this year.

The business attributes the UK performance to a combination of investment and innovation – it plans to invest a total £37.5m in its domestic sites this year; has launched Arla Organic Free Range Milk and Arla Protein Pouches for its Arla Protein range; and agreed a new three-year exclusive contract with supermarket Morrisons from March 2018.

The business is increasing its UK standard milk price by 0.81 pence per litre from September to 30.79ppl, equivalent to a 42% total rise over the last 12 months. 

“We’ve seen a significant increase in our milk price over the last 12 months – a welcome boost for our farmer owners – and our mission remains to secure the highest possible value for their milk, predominantly through the development of our branded portfolio,” says managing director of Arla Foods UK Tomas Pietrangeli. “The strong growth of the Arla, Lurpack and Castello brands shows that we were right to focus on these as part of our UK Strategy 2020.”

“This success is likely to be welcomed given the wider turbulence of the last six months.  We are entering a defining time for British dairy as the UK finds its place outside the EU. Arla will continue to work in the coming months and years on generating greater returns for our farmer owners and being a champion of British dairy at a time when it needs one the most.”

At group level, Arla Foods amba, which has farmer members in Denmark, Sweden, Germany and the Benelux countries, has reported a pre-tax profit of €130m on revenues of €5.02 billion for H2, compared to €261m and €4.85bn in the same period of 2016.

Revenues rose in line with higher sales prices, despite a 7.9% drop in volumes sold as the business sought higher margin outlets. The cost of raw milk rose to 49% of total costs from 44% a year earlier. But £:€ currency effects cost the business €135m in the wake of the UK decision to leave the EU. Arla says it is actively pressing for a free market in goods and people post-Brexit – it wants a final free trade deal with no trade barriers on milk and dairy products between the UK and EU.

Arla says the outlook is for continued modest milk price increases across the rest of 2017, but warns that this will prompt the arrival of higher milk volumes by the end of the year, “the impact of which is uncertain”.

Arla Foods chief executive Peder Tuborgh notes “As the global dairy market improved, we have responded to the sustained rally in global dairy prices while continually improving our product mix across key markets.

“As a result, we have increased the on-account milk price to the farmers who own our company by 42 per cent over the last twelve months.  They needed that, as the past two-and-a half years have been tough for most dairy farmers around the world. Yet despite that tough backdrop, we have continued to invest, innovate and grow and that growth is making an important contribution not just to our farmer owners, but to the overall resilience of the industry.”