Arla follows rivals with emerging market campaign

Arla Foods is following rival such as Danone and Fonterra in accelerating its push into emerging markets, in a quest to find a market for extra dairy volumes expected to come onstream with the lifting of Europe's production quotas.

The Nordic based co-operative, which also has operations in Germany and the UK, said it would over the next five years "increase its focus" on Africa, China, the Middle East and Russia.

"In these markets, millions of people have achieved a better standard of living and are demanding healthy and safe food products," the group said.

Peder Tuborgh, the Arla chief executive, said: "Our export to these markets is growing rapidly, and we will work hard over the next five years to build on the massive potential that these markets hold."

Extra 1m tonnes of milk

Indeed, Arla said that its revenues in these markets would soar from DKK3.5bn to DKK10bn by 2017, as it sought to fulfil emerging market demand for dairy products with the extra volumes expected to come onstream in the European Union from 2015, when the bloc's production quotas lapse.

The ditching of the quotas will see Arla milk farmers produce at least an extra 1bn kilogrammes of milk a year, compared with current levels, which "cannot be sold as profitable products in the EU due to growth stagnating", the group said.

"The abolition of quotas is the main driver behind Arla… deciding to revise and extend the global strategy."

Ake Hantoft, the Arla chairman, said: "Our dairy products need to reach many new consumers as these increased global sales will help to maintain a viable dairy business in northern Europe."

EU deals off the menu

In Europe itself, the co-operative, whose brands include Lurpak and Castello, said its "main focus will move from expansion to increased profitability and innovation".

Indeed, the group downplayed expectations of further tie-ups within the region, where it merged with Germany's Milch-Union Hocheifel and the UK's Milk Link last year.

While its European businesses "must continue to be developed", they would see "more focus on refining activities", manufacturing dairy products for shipping to emerging markets.

This would be achieved "not primarily through expansion via mergers and acquisitions".

'Main goal is profitability'

The strategy replaces a more EU-focused campaign, unveiled four years ago, to boost revenues to DKK75bn by 2015.

"We are close to the revenue target," Mr Tuborgh said, adding that growth must now "deliver an even higher return to our cooperative owners.

"Even though revenue will naturally increase during the next five years, the main goal is profitability."

Quest for growth

And it echoes campaigns from rivals to expand abroad from slowing Western markets.

France-based Danone, the world's biggest yoghurt maker, has bought businesses in India, Morocco and Russia, while New Zealand-based Fonterra has unveiled plans for growth in China and India, after last year unveiling a push into developing countries.

Dutch-based FrieslandCampina in March bought Alaska Milk, one of the top dairy groups in the Philippines, realising an ambition to expand into developing markets.

Arla itself in June said it would boost its revenues in China five-fold by 2016, from last year's DKK700m ($119m), by developing into a formal tie-up a seven-year-old joint venture arrangement with China Mengniu Dairy over milk powder sales.

The co-operative has also begun selling product through Fonterra's GlobalDairyTrade auctions, to exploit a "so-far-unused source of potential export growth".

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