Global dairy markets are expected to remain unpredictable and tough in 2016, but a turn for the better is anticipated towards the end of 2016, according to dairy giant Arla.

Posting its 2015 results, it says the global dairy markets have rarely been as tough and unpredictable, and 2015 has unfortunately been as challenging as anticipated.

“We have an extremely difficult task ahead of us in 2016 as global milk supply still exceeds demand. We do expect that the global market will begin to turn for the better towards the end of 2016,” says Arla CEO Peder Tuborgh.

World Dairy Markets

Increased milk supply in Europe combined with China’s slowdown in demand and the Russian embargo have sent prices in dairy markets down.

Arla finished 2015 with €10.3 billion in revenue, a 3.3% decline compared to the year before.

The performance price, which measures the value Arla has generated from each kilo of milk supplied by the farmer-owners, was 33.7c/kg with a total volume of owner milk of 12.5 billion kg in 2015 (compared to 41.7c/kg with a total volume of owner milk of 11.7 billion kg in 2014).

“We knew 2015 would be tough on all markets, and it was. Dairy prices have been under pressure worldwide all year, and every dairy farmer has felt the consequences. It affected Arla’s milk price to our owners and our revenue in 2015,” Tuborgh said.

Arla Profits – Lower as expected

The net profit of the Arla Group in 2015 accounts for €295m, of which the profit share of Arla Foods amba is €285m, corresponding to 2.8% of Group revenue.

“Normally our profit target is 3% of our revenue, but in August last year the Board of Directors agreed to reduce the profit target from 3% to the range 2.7 to 3.0% of the company’s revenue.

“This reduction was made in favour of the prepaid milk price to support our farmer-owners in their very difficult financial situation, which is caused by the global decline in milk prices,” says Chairman of Arla Foods, Åke Hantoft.

With China and Russia taking significantly less of Europe’s growing milk pool in 2015, it lead to declining world dairy market prices and in Europe in particular.

Consequently, Arla’s overall revenue in European core markets declined by approximately €200m (3%) in spite of the fact that the company gained market shares and increased sales volumes.

However, in 2015, Arla grew its sales of consumer products by 20% in the Middle East & North Africa, by 50% in China, and by 14% in the US.