Due to a drop in global milk output and rising expenses, the manufacturer of the butter brand Lurpak anticipates dairy prices to continue high.
During the first half of the year, Arla’s sales increased by 17% due to large price hikes.
In certain supermarkets, the price of a 750g tub of Lurpak recently topped £7, which has shocked consumers.
According to Arla, the leading supplier of fresh milk and cream in the United Kingdom, the war in Ukraine has increased farmers’ expenses.
Russia and Ukraine are two of the world’s largest exporters of fertilizer and animal feed; nevertheless, the Kremlin’s invasion has disrupted supplies, resulting in price increases.
After Covid limitations were loosened, the energy demand surged, causing fuel prices to rise. However, the fighting has driven prices further higher due to sanctions and severe shipping interruptions.
In July, the United Kingdom’s inflation rate – the rate at which prices are rising – reached a four-decade high of 10.1%, mostly due to the rising cost of commodities such as milk, cheese, eggs, and bread.
Arla, the fifth largest dairy firm in the world, stated that it had increased the pre-paid milk price for its farmers due to the substantial cost hikes they were experiencing.
However, the report stated that “this has not yet resulted in an increase in milk production due to the sustained and large increase in on-farm costs and the unpredictability of the current global market conditions.”
Compared to the previous year, the average price of fertilizer had climbed by 145%, gasoline by 134%, feed by 36%, and energy by 346%.
The business predicted that the second half of the year would be “much more difficult” because of “continuing inflationary pressure and political turmoil.
Sales increased to €6.3bn (£5.3bn) during the first half of the company’s fiscal year, while pre-tax profit increased by 9 percent to €230m.
Arla predicted that worldwide milk output will continue to fall, which would “add to persistent high dairy costs” and presumably lower consumption.
After a solid performance during the pandemic due to increased use at home, the company reported that growth for its branded products such as Lurpak was flat.
It was reported that consumers were already purchasing less and “trading down” to less expensive products, particularly in the butter and spreadable area.
Earlier this year, Lurpak was trending on Twitter due to customers’ complaints over price increases. The current price for a 750g container of spreadable butter is £6.75 from Tesco’s online delivery and £6 from Asda.
In July, several customers tweeted images of a product covered in security tags, which Asda explained was a decision made by specific stores who may have detected a certain product going stolen.
Arla acknowledged at the time that food price inflation was having a substantial impact on people, but that farmers were also facing large cost hikes.
While the organization does not determine shelf prices, it works closely with retailers to ensure that farmers receive a fair price for the milk they produce.
