Inside_Arla_01_UK by Rosendahls_online

Inside Arla A MAGA ZI N E FO R A R L A FA RMER OW N ER S A BO U T YO U R COMPA N Y

ISS U E T S R I F

rla A r o f e n azi New mag owners farmer

How a digital idea saved production PAGE 4

Martin deals with 84 million kilos of mozzarella PAGE 10

Market analysis: China the main driver PAGE 16

Lurpak®: 120 years old and stronger than ever PAGE 20

Half-year results:

Sustained demand for Arla’s brands PAGE 6

SEPTEMBER / 2021

A helping hand takes a digital shortcut

Sustained demand for Arla’s brands

How new technology saves time and money.

Key figures and trends from the half-year results.

At a stretch: We take a look at what it takes to get 84 million kilos of mozzarella just right.

20 Lurpak®: 120-year-old flagship is stronger than ever Exploring the history, the success and the future market opportunities of one of our most iconic brands.

Editorial

Dear farmer owner Welcome to this first edition of Inside Arla.

24 Joining forces for dairy Farmer owners in the front line of the political debate share their views at a crucial time for dairy.

With this magazine, we aim to give you as an Arla farmer owner a deeper insight into your company – the brands, innovation, production sites and people. It will also feature stories on the markets in which we operate, consumer trends and key industry developments. We have created Inside Arla in response to the interest many of you have expressed, not least through the Coop 2.0 process, in getting a closer look at the business you own. We hope you will find it a valuable addition to our communication with you and build pride in the successes we share. This first edition features key points from our half-year results, the story of one of the digital solutions that helped ensure business continuity during COVID-19, and a closer look at the history of Lurpak®. It is our hope that you will contribute with suggestions for topics, stories, and personalities that we can cover in the upcoming issues of this magazine.

I hope you enjoy the read

Peder Tuborgh, CEO

16 Market analysis: China is the main driver Industry experts share a cautiously optimistic view of the future.

Fixing a problem from the other side of the world What to do when technical problems arise, but COVID restricts access to sites and keeps external consultants grounded? Arla’s solution is an award-winning technology making it possible for experts to travel the world without ever leaving the office. It is called Microsoft HoloLens technology. Digitalisation is playing a big part in Arla’s trans formation now and in the coming years. Inside Arla will follow the topic closely and talk about it from many different angles. The first story is about how COVID-19 forced us to think in a new way. A situation that has ended up

securing savings and efficiencies in both the short and long-term. The health of Arla employees has been a top priority during the pandemic. Protection against infection has also been the precondition for business continuity.

multiple sites including Esbjerg and Nr. Vium in Denmark, Aylesbury and Settle in the UK and in Bahrain.

But with dairies closed to external visitors and travel restrictions in place in most countries, getting technical support was suddenly a problem. They say necessity is the mother of invention, so Arla teamed up with Microsoft to create what turned out to be an award-winning solution using augmented reality technology. It is called Microsoft HoloLens technology.

Safe, fast and cost-effective

On top of the solution being safer in terms of COVID, the system also allows for much faster help from external experts cutting out the travel time from one part of the world to another, therefore leading to issues being solved in a much shorter time frame.

“We had to find alternative ways of getting the support we needed without risking the health and safety of our employees. Getting in contact with the right expert in a critical situation can save millions of Euros and being able to respond to the situation fast is absolutely key to keeping our dairies running smoothly,” says David Boulanger, global head of Arla’s Supply Chain.

While you might not see camera headsets everywhere tomorrow, the solution is definitely here to stay. Arla expects to save around 25,000 EURO per site and is in the process of implementing the solution at more dairies.

The new Microsoft HoloLens technology turned out to be the answer to the challenge. It is a system that allows on-site Arla employees to share their view of the problem with off-site consultants using the camera in a smartphone or a HoloLens. The off-site consultant can then guide the Arla employee by using pointers, pulling up blueprints and drawing real-time, using augmented reality to help fix the problem as quickly as possible. The new technology is already implemented at

“It is a great example of how we can empower our 12,000 employees working at production sites and logistics locations as we can ease their daily work and at the same time save costs. HoloLens technology can be applied in a number of scenarios beyond maintenance, for example, audits and training. The journey has just begun,”, says Henrik Hahn, head of Supply Chain’s Strategy & Digital department.

Half-year results

Our momentum continued, but inflation adds pressure Strong demand for Arla’s products and solid execution ensured a competitive milk price and financial results at the top end of expectations in the first half of 2021. Yet growing pressure from inflation will affect full year results, says CFO Torben Dahl Nyholm, who pinpoints three conclusions from the half year results. 2021 started at a high pace

“What stands out to me is that we carried the momentum from 2020 into the first half of 2021. Thanks to the efforts and adaptability of both farmer owners and employees, we have been able to handle the challenges we still face from COVID-19 and the turbulent markets. Revenue grew by 1.2 per cent, and we continued to achieve efficiencies and cost savings through the Calcium programme. In combination that meant we delivered a result at the upper end of our expectations and were able to pay out a competitive milk price to farmer owners.” Big taste for our strong brands

“Our higher revenue was mainly driven by growth in our strategic brands of 5.6 per cent. Last year, due to the COVID-19 lockdowns, we saw extraordinary growth, so to continue to grow our brands – although at a slower pace – is a strong result. We were still helped by more consumers cooking at home, driving up retail sales, so we should not expect this kind of growth in the next six months. Nonetheless, it shows the confidence consumers have in our brands and the strong appetite for dairy globally. Generally, it is encouraging to see growth across all our revenue streams and an increased market share globally.” Growing pressure from inflation

“Fortunately, the economy recovered more quickly than expected, which has driven commodity prices up and increased demand from consumers for our products. However, the increased inflation will also be a challenge both to farmer owners and to Arla as a business the rest of the year. Rising cost of feed, fuel, packaging and in other areas will push up cost of production both on farm and in our dairies and logistics – and will also affect the size of our net savings from the Calcium programme.” 6

Revenue

Performance price 1)

Milk volume

5.4

38.6

7.0

(billion EUR)

(EUR-cent/kg)

(billion kg)

HY 2021

5.4

HY 2021

38.6

HY 2021

7.0

HY 2020

5.4

HY 2020

37.0

HY 2020

7.0

HY 2019

5.2

HY 2019

36.1

HY 2019

7.0

2021 target: EUR 10.3-10.6 billion

Profit share 2)

Leverage

3.0%

2.8

(of revenue) HY 2021

3.0%

HY 2021

2.8

HY 2020

3.0%

HY 2020

2.6

HY 2019

2.3%

HY 2019

3.0

2021 target: 2.8-3.2%

2021 target: 2.8-3.4

Strategic branded volume driven revenue growth

Brand share

International share 3)

5.6%

49.2%

24.5%

HY 2021

5.6%

HY 2021

49.2%

HY 2021

24.5%

HY 2020

10.4%

HY 2020

48.3%

HY 2020

24.2%

HY 2019

4.6%

HY 2019

45.7%

HY 2019

21.0%

2021 target: ≥50%

2021 target: 1-3%

2021 target: >23.5%

Calcium savings excluding estimated inflation

(million EUR)

HY 2021

2020

130

2020

2019

110

2019

142

2018

114

2018

195

Accumulated savings at HY 2021: 383

143

Accumulated savings at HY 2021: 562

1) The milk conversion factor from litre into kg was 1.02 for milk volumes until 30 June, 2021. Effective from 1 July 2021, the milk conversion factor is 1.03. 2) Based on profit allocated to owners of Arla Foods amba. 3) International share is based on retail and foodservice revenue, excluding revenue from third-party manufacturing, Arla Foods Ingredients and trading activities.

PERFORMANCE REVIEW Competitive pre-paid milk price Despite the continued uncertainty caused by COVID-19, Arla managed to increase the average standard pre-paid milk price to 36.0 EUR-cent/kg, which is an increase of 1.6 EUR-cent/kg compared to the same period last year. This positions Arla at a competitive level and supports our farmer owners through times of increasing production costs at their farms.

Steady branded growth in light of Covid-19 Following a year of exceptional branded growth, Arla’s brands continued the growth journey into 2021 delivering strategic branded volume growth of 5.6 per cent, which is above our target range of 1-3 per cent. However, the exceptionally high growth rates started to normalise towards the end of the half year reaching normal levels in the last months, and we expect to see normal growth levels throughout the second half of the year.

Firm execution throughout our value chain combined with increasing market milk prices and changed volume/ mix contributed to achieving a solid performance price of 38.6 EUR-cent/kg compared to 37.0 EUR-cent/kg in the first half of 2020. Our transformation and efficiency programme, Calcium, contributed positively by EUR 82 million excluding inflation, equal to EUR 29 million in net savings. Milk intake from our farmer owners and other external sources was overall unchanged at 7 billion kilos, same as in the first half of 2020.

The growth in the first half of the year can partly be explained by the effects of continued lockdowns and in-home consumption due to COVID-19 restrictions, but also by an overall executional power, brands that resonate well with consumers, new market share gains and new product launches. Sales of Starbucks™ licensed products increased by 42.7 per cent in branded volume growth, and Castello® performed above expectations, reaching 7.8 per cent. The Arla® brand also delivered high growth of 6.9 per cent driven by high performance across most categories and sub-brands. After an unprecedented volume growth in the first half of 2020, largely driven by changed consumer behavior on the back of the Covid lockdowns, Lurpak® almost managed to repeat its historically high sales volumes from last year. Puck® delivered solid 3.0 per cent in branded revenue growth. The overall brand share increased to 49.2 per cent compared to 48.3 per cent in the first half of last year.

solid retail driven revenue growth During the first half of 2021, revenue increased by 1.2 per cent to to EUR 5,441 million compared to EUR 5.377 million in the same period last year. Revenue growth was primarily driven by higher sales prices and branded volumes in retail. This was partly offset by a decrease in the foodservice segment in the first quarter due to long periods of lockdowns. High consumer demand put inflationary pressure on commodity prices, and increasing sales prices contributed positively to the revenue increase by EUR 77 million. Currency effects had a negative impact on revenue of EUR 61 million.

Owner milk price 1)

Foodservice slowly started recovering in many markets; however it was still not back to pre-COVID-19 levels in the first half of the year where retail sales continued to to be the main driver of our performance.

Branded volume growth development

(EUR-cent/kg)

HY 2019 to HY 2021 38.6 37.0

36.1 34.2

HY 2019

36.0

34.4

HY 2020

HY 2021

5.6%

HY 2020

10.4%

HY 2019

4.6%

BRANDED VOLUME GROWTH BY GLOBAL BRAND

HY 2021

Standard pre-paid milk price Performance milk price

Revenue development

6.9%

-0.8%

7.8%

HY 2020: 3.3%

HY 2020: 17.7%

HY 2020: -0.5%

3.1%

42.7%

HY 2020: 16.7%

HY 2020: 13.1%

(million EUR) HY 2021

5,441

HY 2020

5,377

HY 2019

5,232

Europe Our European commercial segment delivered overall branded growth of 2.5 per cent, primarily driven by Starbucks™ at 41.3 per cent, Castello® at 4.2 per cent and the Arla® brand at 2.5 per cent. Especially the Arla sub-brands LactoFREE® and the Fill N’ Fuel category grew strongly by 14.4 and 13.5 per cent, respectively. Markets continued to grow, led by Netherlands/ France/Belgium, UK and Denmark with 9.5, 4.6 and 2.4 per cent, respectively. The brand share of the European segment increased to 55 per cent compared to 53 per cent last year. Revenue increased slightly to EUR 3,199 million compared to EUR 3,178 million in the same period last year. Long periods of lockdowns caused a small decline in foodservice in the first quarter of the year; however, significant growth was seen in the second quarter as restaurants started to reopen. The e-commerce business grew at a fast pace with revenue growth of 34 per cent compared to the same period last year. Global Industry Sales Our Global Industry Sales business had a positive start of the year as commodity markets started to recover after Covid-19. This was driven by high global demand. Commodity prices generally increased during the first half of 2021 and by the end of the period, prices reached a higher level compared to the same period last year. Due to the increased sales through Arla’s retail channels, the overall share of milk solids sold by our Global Industry Sales fell to 23.1 per cent compared to 23.6 per cent last year. Despite the decrease in volume the revenue increased slightly to EUR 818 million compared to EUR 815 million in the first half of 2020 as a result of the price increases.

International Our International segment grew branded volumes across all regions and main brands in the first half of 2021. Starbucks™ delivered high growth of 45.1 per cent, followed by the Arla® brand at 24.7 per cent and Castello® at 11.0 per cent. Sales from Kraft® branded products were at the same level as in the first half of 2020. The long periods of increased in-home consumption impacted positively on sales, and the higher costs for products and services as well as the adverse effects of a declining USD were to a high degree offset by price increases. Thus, revenue grew modestly to EUR 1,037 million compared to EUR 1,024 million last year. The brand share of the International segment increased slightly to 88 per cent compared to 87 per cent in the first half of 2020. Arla Foods Ingredients Arla Foods Ingredients (AFI) continued to meet increasing customer demands for protein and lactose ingredients, and revenue grew to EUR 387 million compared to EUR 360 million in the same period last year. The value-add whey volumes grew by 9.8 per cent to a total value-add share of 69.6 per cent due to succesfully utilising additional new raw materials, recently secured through new strategic sourcing arrangements. AFI’s child nutrition manufacturing business performed in line with the same period last year with a revenue of EUR 78 million. New product launches from our customers showed positive indications for the future for this part of the business.

FINANCIAL OUTLOOK After a strong first half of 2021, we increase our guidance for revenue and strategic branded volume driven revenue growth for the full year 2021. Our expectations for Calcium are challenged due to high inflationary pressure into the second half of 2021.

2021 targets Revenue

Profit share

10.6-11.0

2.8-3.2%

EURb (adjusted from 10.3-10.6)

(unchanged)

Calcium savings excluding estimated inflation

Calcium savings

Strategic branded volume driven revenue growth

> 150

< 20

3-4%

EURm (adjusted from >45)

(adjusted from 1-3%)

International share

Leverage

Brand share

> 23.5%

≤ 2.8

≥ 50%

EURm

(unchanged)

(adjusted from 2.8-3.4)

(adjusted from >50%)

Dairy Tales

The cheese whisperer From a small town in the Danish region of Jutland, Mozzarella is dispatched to 100 countries around the world. Martin Fredsøe Hassl is responsible for the production. Twice a week he takes a bite of 30 different slices of pizza and that’s not merely for personal amusement.

Dairy Tales

Martin Fredsøe Hassl takes a bite of the steaming pizza, the slice is straight from the oven, it’s perfectly crispy and with golden brown mozzarella cheese on top. He chews on it, staring into space, and then ticks the box on the piece of paper in front of him, and says: “Approved.” Martin is not your average cheerful pizza eater about to have a bit of lunch. Martin is responsible for the quality control of the 84 million kilos of mozzarella cheese that Rødkærsbro dairy produces annually . Every single day of the year 2.3 million litres of milk are loaded into the dairy tanks at Rødkærsbro. Milk from a total of 84,000 cows, amounting to almost 20 per cent of Danish milk production. As soon as the milk has been weighed, a well-oiled cheese producing machine starts up. It runs around the clock, all year round. Once Martin has chewed, tasted and ticked ‘approved’, he spits out the pizza bite into a tray. Yet another 29 bites of pizza await him this morning. Not unlike a professional wine taster, he needs to make sure to spit it out in time to do a proper job. Dream job

Martin Fredsøe Hassl has worked at the Rødkærsbro dairy for eight years. He is a trained dairy engineer. At school, he was a fond student of chemistry and physics, but in the end he was more keen to see it put into practice rather than focusing on the more theoretical side of the

subjects. So when a friend told him about the possibility of becoming a dairy engineer, he didn’t hesitate. Martin has held other jobs, but in the end he settled for dairy production which then brought him to Rødkærsbro. He first worked for three years as an operations engineer, taking care of quality assurance while also undertaking development projects. For the past five years, he has been production manager and responsible for the mozzarella production.

oven. That way the experience can be as close as possible to the one That way the experience can be as close as possible to that of the end customer when they take a bite pizza with mozzarella from Rødkærsbro be they in Japan, Germany or Italy Today’s customer is a large pizza chain who prefers a light brown surface with a mid-degree of melting, and that happens to be exactly what this mozzarella has turned into after six minutes in the oven. Martin is satisfied.

… we constantly “ seek to fine-tune the production. ”

Twice a week Martin takes part in the quality testing of mozzarella. Today is one such day. However, it is actually not a quality test as such, since the quality is mostly always in order. The work is really about making sure that the cheese corresponds to the various requirements of the dairy’s clients. The test usually takes place by baking the pizza base with tomato sauce, which is often delivered directly by the client. The test itself then centres on whether aspects such as the brownness, taste and consistency of the mozzarella are as they should be. The oven in the dairy kitchen is a bona fide pizza 12

Worldwide success

The success of mozzarella from Rødkærsbro is not entirely accidental. Demand for mozzarella is rising globally, which is partly driven by the growth in products such as pizza. The global pizza market is expected to grow by 4.6 per cent by 2023, strongly driven by an increase in demand in developing countries and in Asia, but also by growth in the European market. Looking to the future, Arla’s experts expect that the European market for mozzarella cheese will reach 720,000 tonnes by 2022. Therefore, Arla has started to expand production at the Branderup dairy, which is the other Arla dairy that produces mozzarella.

EMPLOYEE

Name: Martin Fredsøe Hassl Title: Production Manager Number of years in Arla: 8 years Age: 36 years FACTS:

• Arla exports mozzarella to 100 countries worldwide • In total, exports run up to approximatively 500 million Euro • 2.3 million litres of milk are weighed every day • The milk is transported in 70 milk trucks • 84,000 cows produce the milk • 9.8 litres of milk turn into 1 kilo of cheese • Rødkærsbro produces 230,000 kilos of cheese daily • Less than 5 per cent of the mozzarella is consumed in Denmark. The remainder is exported • Production of mozzarella in undertaken by two Danish dairies. Branderup has so far produced less than Rødkærsbro, but is now in the process of being expanded, which will increase capacity to 91 million kilos by 2022.

Dairy Employee Tales

Dairy Tales

How is the cheese made?

The actual production of the cheese takes place in a process which can be described as fast-paced and yet quite complicated. From his office Martin looks out over a production facility the size of a football field. The 12 cheese tanks are each filled with 16 tons of fresh milk from which each filling of the tank is turned into 2.5 tons of cheese. Rødkærsbro produces 10,000 kilos of mozzarella cheese per hour. Inside the production hall, you really get a sense of the efficacy of the process. The air is humid and there is a penetrating buzz from the many machines. After spending a few hours in the large tanks, the cheese is passed on. The whey is drained off and the cheese is heated in salt water and kneaded, and comes out in 2.3 kilo blocks. A robot puts four pieces into the packing machine and vacuum packs them into 20 pound blocks. Martin picks up a block, breaks it at the middle, chews contentedly on a piece. “It has the right kind of chicken meat-structure,” he says with a smile. A mere 3.5 hours after the fresh milk came in from the local cows and was pumped into the cheese tank, it has now been transformed into mozzarella. The cheese is since cooled off in cooling towers that hold minus 10 degrees and is then packed

on pallets. After a few weeks of ripening the cheese is ready to be exported, grated or in blocks, to China, Japan, or maybe just to neighboring Sweden. Mozzarella is sold both refrigerated and frozen. If frozen, the mozzarella stays good for 2 years.

a mozzarella that can be stretched a bit more or which has a more firm consistency.

Happy employee

“Mozzarella does not have that much flavour in itself. Therefore, the challenge consists in making the cheese firmer so that it is better suited for grating. Or to make it go brown in different way,” he says.

Martin is far from being tired of pizza, and he is happy with his job. His abilities are constantly put to the test when clients come up with demands that require different recipes for mozzarella with new qualities.

The time has now come for Martin to take his pizza bite number 30 – the last one of the day. He takes a bite, chews on it for a while and looks pleased. The brownness too is

“

I love it. It’s a fun job, we’re constantly working to streamline the work process and renew ourselves through innovation.

”

“We’re never at a stand still. For example, not so long ago we set up a camera in the kitchen with a fixed light setting in order to better compare the degree of brownness of the mozzarella on the different pizzas. So, we constantly seek to fine-tune the production,” says Martin Fredsøe Hassl. The recipes are also constantly adjusted if, for example, a client wants 15

up to standard. Thus, the last bite of the day was yet another success.

“It is a big responsibility to be part of such a huge production effort. But I love it. It’s a fun job, we’re constantly working to streamline the work process and renew ourselves through innovation. It has gone really well in recent years, but there are new challenges on the horizon,” says Martin Fredsøe Hassl.

Cautiously optimistic view of the future China is front and centre when analysing the key trends in the dairy market. A stormy year marked by the COVID-19 crisis, has been weathered but new challenges loom on the horizon. One of the reasons that China drives the market so significantly is that public health messaging has been centred around the slogan that ‘milk is good for your health’ since the mid-1980s. Later, the melamine infant milk scandal of 2008 led to a drop in confidence among Chinese consumers and boosted demand for imported baby milk powder. In 2021 China imported more of virtually all dairy products. In May imports were up by 79 per cent and China is now by far the largest importer of dairy products at world level.

There is no way around it. Even if dairy market analysts want to take a truly global view of trends in the market, the conversation invariable gets back to China. This is no less the case after a year of market upheaval, where the Covid crisis first ground food service demand to a dramatic halt, but was then replaced by inventory build-up in China. With this backdrop Kevin Bellamy, Rabobank’s dairy market analyst, takes a cautiously optimistic view of the future: “Chinese imports have supported the market through Covid crisis. Because of fears that supply chains were going to be interrupted, the Chinese started building up inventory to be sure they could get product to consumers. The question is whether they will be buying less, now that they are starting to become a little less concerned.”

Looking ahead, the rising global inflation takes centre stage. “Major public investments, particularly in the USA, are creating inflationary pressures that may choke demand. However, looking at all the difficulties of the past year, prices have been robust, and look set to remain that way,” says Kevin Bellamy of Rabobank”.

A degree of uncertainty stems from the question of just how well-managed the built-up inventory is. When China bought up milk powder in 2013 prices turned out to be too high for the average Chinese consumer. Thomas Carstensen, head of milk & trading at Arla, recalls:

The fact that logistics have got much more difficult since the start of the Covid crisis remains a major challenge. An important factor driving up costs has been entry restrictions at the ports. “Basically, we still see a lot of containers that are stuck in the wrong places. Covid has frozen up logistics channels and we don’t see that sorting itself out quickly,” says Kevin Bellamy.

“In early 2014 they just stopped importing almost overnight. The question being asked now is whether China has a good level of control with its inventory.”

“

In May imports were up by 79 per cent and China is now by far the largest importer of dairy products at world level 17

”

to the office on all or only some days? Will restaurants be capable of getting staff? Will people adapt different lifestyles after the pandemic?” asks Kevin Bellamy.

New normal

A higher degree of price volatility has been the new normal for milk producers for some time. Thomas Carstensen puts the effects of the Covid crisis into a wider context: “The volatility that each milk producer is faced with today is actually the story of a journey that started with the reform of the EU’s Common Agricultural Policy in 2002, which led to the phasing-out of milk quotas by 2014-15. We used to have a highly stable European dairy market with intervention mechanisms that took the edge off most of fluctuations. Now milk prices are subject to the full force of world market volatility.”

“

Whatever the future holds, one of the lessons learned from the past year is that most clouds tend to have a silver lining, and the dairy sector has proven itself to be adaptable. When restaurants closed at the onset of the pandemic food service demand dropped, but that was not the end of the story: “Food service matters to Arla, but the sale of milk, cheese and butter is far more important. Thus, we were able to weather the storm, es-

For years European consumption of fresh milk has been falling by 500-600 million litres annually, but this past year we have seen a rise.

”

Therefore, any change in Chinese demand, production levels in New Zealand or American support schemes can now take on major importance. This has made price changes of one eurocent per kilogram an almost common occurrence.

sentially because what was lost on the food service side was replaced by higher demand at retail level,” explains Thomas Carstensen. One of the side effects of families being confined at home for months was that more time was dedicated to eating breakfast together and to making homemade cakes and pastry. This helped boost retail demand for dairy products.

“Those fluctuations were unthinkable 15 years ago,“ says Thomas Carstensen.

“For years European consumption of fresh milk has been falling by 500-600 million litres annually, but this past year we have seen a rise. What happened is that all the schoolchildren who would usually buy a smoothie or a soft drink, were now handed a glass of milk at lunch by their parents. That has been the picture not just in Europe, but also in China,” says Thomas Carstensen, thus once again placing Chinese dairy demand in a key role.

The post-Covid world

Sooner or later the Covid pandemic will be a thing of the past, but the big unknown is to what extent the lifestyle changes that were brought on by the lockdowns will linger on: “We often tend to look mostly at the macro scale, but in fact there are all sorts of important micro level events that matter greatly too. Future demand will be affected by questions such as: Will staff return 18

Our iconic brands

Arla’s strongest global brand is doing better than ever

Our iconic brands

The Lurpak® brand is 120 years old and still going strong. The COVID-19 crisis has intensified demand which is greater than ever. Lurpak is sold in 95 countries worldwide and in 2020 sales reached almost half a billion packs.

What do Malaysia’s white beaches, Saudi Arabia’s desert, English breakfast tables and Danish restaurants have in common? Well, at least one thing. Lurpak® butter. Arla’s most recognisable brand is found in no less than 95 countries around the world, and it takes pride of place in the history of Danish dairy farming. No other brand the world has managed to bring farmers together over such a long period of time, united in the common goal to create the world’s best butter.

“Lurpak® bears great testimony to all the achievements of the cooperative movement and the community behind it. The starting point was a community where pride, expertise and passion for quality went hand in hand. And that’s still the way it is. This uncompromising approach, going all the way from the farmer to the consumer, has sustained Lurpak®’s success for 120 years,” says Christian Fischer, global head of Lurpak®. The story of Lurpak®

Butter has been around for well over 5,000 years. It was the Vikings who began to call it ’smør’, which is the Danish word for butter. The Vikings actually brought butter along with them on many of their travels. Not all types of butter were equally good. 150 years ago Danish butter was by no means recognised as good quality around world. The

English called the Danish butter ‘mast butter’ because it was mostly used for lubricating the wood of ships’ masts. The decisive breakthrough came in 1882 when a small group of farmers in Jutland decided to merge and establish a cooperative dairy based around a newly invented machine that was capable of automatically separating the cream from the milk. Other farmers followed on and soon butter exports surged from 12,000 tonnes in 1882 to 78,000 tonnes in 1900. Lurpak® became a trademark in 1901

The success inspired producers in other countries to start selling their butter as Danish, and this in turn led a number of manufacturers to join forces and create an association that would provide strict quality controls. The initiative quickly attracted almost all of Denmark’s dairies, and by the year 1900 more than 1,000 private and co-owned dairies were exporting their products under a common trademark: Danish butter. In 1901, the brand Lurmærket was registered for the first time and barrels of butter with the familiar logo started being shipped. So, today the brand is 120 years old. In 1906, a law was introduced in Denmark which stipulated that only 21

Lurpak®-labeled butter was allowed for export. Simultaneously a new regime with weekly butter tastings were introduced to ensure continued quality. It became a tradition that exists to this day. Every week tasting sessions are carried out to ensure that the butter meets all technical requirements. Is the appearance, taste and structure of the product up to standard? A number of trained butter tasters assess whether Lurpak® meets all the requirements. The taste of Lurpak® should always be clean, fresh and creamy, and should be recognisable as just that. Surging exports

Lurpak® butter is now sold in 95 countries around the world. Originally, the butter was shipped in wooden barrels, allowing the butter to stay fresh for several months. Tin cans, however, were used if the destination was really far away. In the 1950s, a more hygienic packaging system replaced the 50-kilo barrels, which paved the way for the classic 250 grams packages that immediately became a huge commercial success. The appearance and content of the packages have roughly stayed the same since then. Lurpak® has been owned by Arla since 2012, and in the intervening years the strict weekly quality control has been maintained, further

Our iconic brands

consolidating the brand’s success. Sales of butter have gone up by 62 per cent since 2007, and notably, in the Danish market Lurpak® has a 54 per cent market share. COVID has strengthened Lurpak®

Contrary to many industries and products that were negatively affected by the COVID crisis of the past year and a half, Lurpak® has only emerged stronger. While consumers around the world had to stay home, sales of Lurpak® increased as people found new

Lurpak® ready for the future

Being Arla’s biggest global brand, Lurpak® also plays a key role in Arla’s sustainability goals and strategy. Lurpak® is currently working on a number of changes, which means that Lurpak®’s KPIs will be directed at green initiatives. Recently, a Lurpak® butter box made from recycled cardboard was introduced. This is the biggest change of Lurpak® since 1950s, and more changes in that direction are one the menu. Ways of thinking outside the box are constantly considered:

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Lurpak® is our flagship in many markets and a product which secures us a strong profile.

ways to spend time in their kitchens, leading families to eat most meals together - cooking, baking and buttering their bread to an unprecedented extent. Globally, Lurpak® sales rose by more than 15 per cent. Even in the UK, which is Lurpak®’s largest market, demand also rose by 15 per cent, breaking a new record. In a single week a total of 86 trucks of Lurpak® were shipped to the UK.

“The new consumption patterns during COVID-19 crisis have led consumers around the world to take up cooking and baking in new ways while also turning to quality brands like Lurpak®. We do not see that trend going away soon,” says Christian Fischer.

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“Alongside being such a strong brand comes a special responsibility. We are present in millions of refrigerators in households around the world, and we are naturally looking for ways to support sustainable behaviour in the homes,” says Christian Fischer. On the backdrop of new sales records and the title as the world’s most famous butter brand, it can sometimes be a challenge to set out new ambitions. But that doesn’t stop Lurpak® from trying. Therefore, work is underway for a new version of Lurpak® with less fat.

It will only contain butter, water and salt because consumer surveys have indicated that they hesitate to buy light-products with too many added ingredients.

“Lurpak® is our flagship in many markets and a brand which secures us a strong profile. It is a key part of Arla Foods business product range anywhere in the world, a first-class business card and a great example of the importance of investing in building strong brands, which is at the very heart of Arla’s business model,” says Christian Fischer and explains how a strong brand like Lurpak® is profitable from several perspectives of Arla’s value chain: “Consumers trust and love a strong, recognisable brand, and the innovation and growth around a brand like Lurpak® drives the category for our customers and helps secure space in the dairy aisles. Finally, creating strong brands is very important from an owner perspective, because they drive up value and makes us more resilient to adverse macro factors. Therefore, strong brands are a key asset that create a higher and more stable milk price.” Overall, he remains highly confident about of the upcoming years.

“We will continue to be the strongest butter brand in the world. We will conquer new markets in more countries, and pursue our green efforts, support healthy eating habits and maintain our relevance to the consumers,” he says. “It’s a great honor to have a place in the fridges of millions of people. We will cherish that honor by never forgetting the farmers who united back in 1901 with the stated common goal of providing high quality butter,” Christian Fischer concludes.

Lurpak® was registered as a trademark in 1901 Sold in

95 countries

Since 2007 sales have grown by

62% 3 biggest markets in Europe: UK: 68,050 tonnes* Denmark: 13,600 tonnes* Greece: 2,800 tonnes*

3 biggest markets outside Europe:

United Arab Emirates: 4,061 tonnes*

Australia: 4,048 tonnes*

Saudi Arabia: 3,955 tonnes* * All volumes refer to total volume sold in 2020.

Total sales correspond to

460 million packs of Lurpak ®

“ If what we come up with

makes sense, then the officials will remember it, and they will pay attention to our views. David Christensen Board of Representatives Member, Chairman of Arla Foods Regional Advisory Group

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Joining forces to influence the future of dairy As key political decisions affecting the dairy industry are taken, ensuring both farmers and company is heard by legislators is more important than ever. As a cooperative, Arla has a particularly strong voice sumers, customers and stakeholders and ultimately makes Arla a leader in sustainability.”

From climate and animal welfare to water quality and dietary guidelines, politicians on national and EU level are setting new frameworks on agriculture for the years ahead.

Ensuring informed decisions

Apart from working on EU level, many elected farmers play a key role in engaging politically in their individual markets.

The race to influence policy makers on sustainable food production is heating up – and the field is crowded, with many competing views. As a cooperative, however, Arla has a unique and important voice in this debate which policies and governments are keen to hear.

Among them is David Christensen, farmer owner from near Oxford, member of Arla’s Board of representatives and Chairman of Arla UK’s Policy Advisory Group. The group meets regularly, and the key focus is on upcoming acts of legislation. For a good number of years, Brexit was the dominating issue, but the agenda is now become more diverse covering trade policy through to water quality legislation.

Ensuring the best possible conditions under which to operate, both as dairy farmers and company, requires a long-term and collaborative effort, says Peter GiørtzCarlsen, Executive Vice President for Arla Europe and Executive Board Member:

“The efforts of our farmer owners in this area is crucial to how well the political advocacy work succeeds overall. Having the voice of our milk producers as well as Arla as a company at the table is a strong combination,” he explains. This collaborative effort has rarely been more important than today.

David experiences that politicians can make more informed decisions through the advocacy work that he and other Arla members take on.

“Even with the of best intentions, politicians cannot always fully understand how we work and how their policies will affect us. So, the aim is to make legislation more effective, but in such a way that it doesn’t affect us too much,” he says.

“The EU’s Farm to Fork strategy is a good example of a major policy that will determine the future of our industry and one that Arla needs to be part of shaping. We have been working in Brussels and across our markets to ensure our voice is heard as this strategy is developed. It is important that we continue to be at the forefront of sustainability within dairy and work together- the business and owners- to develop solutions to reduce our climate footprint that consumers will support and will build influence with political stakeholders,” says Peter Giørtz-Carlsen.

Strong network

On the practical level, the political engagement is carried out by an Arla’s Public Affairs team and often in collaboration with other organisations.

“We have an extremely strong network that constantly updates us and helps us to assess where to best put in our efforts,” explains David Christensen, who often takes part in farm visits with politicians and officials.

“This builds confidence in our progress towards our 2030 climate ambition and benefits out position towards con-

“It’s a good way of passing fresh knowledge directly on to officials and politicians and forge ties. If what we come up with makes sense, then the officials will remember it, and they will pay attention to our views,” says David Christensen.

with several other politicians. Getting a first-hand view of the work processes and conditions on farm is a strong tool.

“The politicians see for themselves how we work with animal welfare, for example. It works really well,” says Inger-Lise Sjöström. Strengthening the Swedish efforts also influences EU level.

Steen Nørgaard Madsen, Arla board member and chairman of the Danish Dairy Association, agrees:

“Politicians are no smarter than other people. They need us to help them better understand the full consequences of their decisions. That is why it is crucial that we are involved in the political processes,” he says.

“We get to place our owners into the EU Agriculture Commission, and participate in dialogues about milk, meat and much more. It makes a real difference when it later comes to a vote on what constitutes realistic and good animal welfare. We do not let other organizations take the lead in this dialogue. Now we, the owners and Arla, do it together,” says Inger-Lise Sjöström.

When it comes to the EU, Arla works closely with the Danish Dairy Board, which has an office in Brussels. The team is focused on dairy market legislation and on farm issues like animal welfare and keeps up to date with political discussions in Brussels.

In Germany, BoR member Marlen Biß took part in several panel discussions with politicians during spring and also hosted a farm visit for a regional minister:

“That way we are in close contact with members of the European Parliament, and stay informed about what

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The big focus on climate, sustainability, having a ‘license to produce’ is of crucial importance.

is happening in both the Commission, the Council and Parliament on all matters relevant to us, so we are able to get some adjustments added to such proposals,” says Steen Nørgaard Madsen.

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“It is important to show politicians how we as farmers work and what measures we are already taking, for example when it comes to sustainable milk production. In order to be included in political processes and decisions, we have to involve ourselves actively and that’s what we are doing as a dairy cooperative,” says Marlen.