Arla Foods highlighted a two-tier world dairy market,
divided between high-growth developing countries and sluggish Western
performance, as it acknowledged the "extremely strained" profitability at
European dairy farms.
The Danish-based co-operative said that its core European
markets, facing "tough" conditions, saw "low growth" in 2012, with flat
turnover in countries such as Denmark and the Netherlands, and mergers boosting
performance in the likes of Germany and the UK.
However, markets outside the European Union "are
experiencing double-digit growth rates", with Arla restating a forecast that
the greatest long-term growth rates would occur in China, the Middle East and
Africa, and Russia.
In 2012, the Chinese business saw sales of consumer products
rise by 57%, while Russian turnover rose by 28% to more than DKK600m, and Middle
East and Africa sales by 22% to some DKK3bn.
These markers drove a rise of 2.1% in Arla's organic sales
growth over the year.
"It became clear in 2012 that future opportunities lie in
new growth markets," said Peder Tuborgh, the Arla Foods chief executive.
"We have never experienced such a positive development in
our profits outside the EU," he said, terming growth in other markets "explosive".
"It is evidence that our international strategy is now
delivering for us in financial terms and it demonstrates that the international
markets will be crucial for our future earnings."
Arla last month revealed it was accelerating its push into
emerging markets, where it would achieve revenues of DKK10bn by 2017, up from a
level quoted at the time at DKK3.5bn.
Many other Western dairy giants, such as New Zealand's
Fonterra and Dutch-based FreislandCampina, are also expanding in developing
countries to escape sluggish domestic growth prospects.
The rosy outlook for growth in emerging countries contrasted
with weak prospects for Arla's core European markets, where Denmark looked set
for a year "characterised by discount products and price", while in the UK "2012
market challenges will continue through 2013".
Indeed, with Europe's dairy industry facing sluggish markets,
but elevated feed costs, boosted by high grain prices, Arla underlined that
many producers had operated at a loss last year.
"We fully appreciate that the ratio between our members'
earnings from milk production and on-farm costs is, currently, extremely
strained," Mr Tuborgh said.
"In 2012 the high cost of energy and feed for the cows meant
that, for some, the milk price did not sufficiently cover the cost of
operations on the farm."
Arla said that its earnings for last year rose 3% to
DKK1.9bn, narrowly ahead of forecasts at the half-year stage, on turnover up
14.9% to DKK63.1bn, with much of the growth down to mergers, such as with the UK's
However, profits per kilogramme of milk supplied by the group's
12,300 members fell 3.6% to DKK2.71.