Milk buyer and processor Arla Foods has acquired the Yeo Valley Dairies business in order to increase organic milk sales in the UK. It has also unveiled plans to spend £72 million on upgrading its UK dairy facilities in 2018 as part of a wider €527m investment across its European business.

Arla Foods is to acquire Yeo Valley Dairies, the milk, butter, spreads and cheese making subsidiary of the Yeo Valley Group, subject to competition authority approval. Financial details of the transaction, which will allow Arla to use the Yeo Valley brand for these dairy products, are not available. The Yeo Valley Group’s yogurt, ice cream, cream and desserts business will continue to be run independently by the Mead family, with the change enabling a greater focus on these products.

“The potential for future investment in range through this licensing agreement with Yeo Valley provides a significant opportunity to offer a greater choice to consumers at attractive prices,” says Arla Foods managing director Tomas Pietrangeli. “Our ambition is to encourage customers to trade up from standard to organic milk, butter and cheese, driving overall growth for organic across dairy categories.”

Arla says only 4% of UK fresh milk sales are organic, compared to 10% in Germany, 16% in Sweden and 29% in Denmark.  “Organic milk has a key role to play as consumers increasingly look for ways to make their diets healthier,” notes Mr Pietrangeli. “Its production without the use of artificial or manufactured herbicides and fertilisers, and with high standards of animal welfare, are key reasons for organic milk growth, especially with younger consumers. Arla is working with industry bodies to continue to help consumers understand the additional benefits that come with organic milk.”

● Arla is to invest in upgrading ten of its UK production sites.  It will spend £33.6m at its flagship Aylesbury facility to create a lactose-free dairy product capability there, using milk from UK farmers in the south east and the midlands. The company says the UK is a key market for lactose-free products and it can leverage its experience in supplying Scandinavian markets to meet the increasing UK demand for lactose-free lines.

The company will also invest in the facilities to package some Aylesbury milk in flexible pouches, in order to reflect growing consumer and government concern over the effect of plastics in packaging on the environment.  Arla is already committed to 50% recycled plastic in its plastic milk bottles.

A further £5.5m will be invested in upgrading processing facilities at the Arla Lockerbie plant, with the remaining £32.5m split across company sites in Melton Mowbray; Llandyrnog; Malpas; Oakthorpe; Stourton; Settle; Oswestry and Trevarrian.

“Arla is the biggest dairy company in the UK and this spend is almost double the investment of last year,” notes managing director of Arla Foods UK Tomas Pietrangeli. “Save for building the Aylesbury dairy, it is the biggest annual investment for Arla in the UK. While milk prices remain volatile and Brexit brings both uncertainty and opportunity, Arla farmers in the UK and across Europe are committed to continually investing in our UK business to maintain pace with the demand for nature’s original superfood, and the consumer choice it creates.”

The expenditure plans include €266m for Denmark, €78m for Sweden; €65m for Germany and €36m spread across other countries.  Arla says half of the investment projects in 2018 will help grow its export sales outside Europe, particularly in fast growing markets such as the Middle East and North Africa; China and Southeast Asia; Sub-Saharan Africa and the US.

The Arla Foods Ingredients business will receive €100m to grow its whey production operations, with investment in new technologies and capacity expansions.