Dairy giant Arla warns prices set to remain high

It comes as the maker of butter brand Lurpak, which has packing facilities in Oswestry and Malpas, near Whitchurch, reported a 17 per cent rise in sales during the first six months of the year driven by significant price increases.

Shoppers recently expressed shock that the price of a 750g tub of Lurpak surpassed £7 in some supermarkets.

Arla, the UK's largest supplier of fresh milk and cream, said the Ukraine war had pushed up farmers' costs.

Russia and Ukraine are among the world's biggest exporters of fertiliser and animal feed but the Kremlin's invasion has disrupted supplies, leading to increased prices.

Fuel prices were already rising as demand for energy increased after Covid restrictions were eased. But the war has pushed them up further because of sanctions and severe disruptions to shipments.

Soaring food prices drove the UK's inflation rate to a four decade-high of 10.1 per cent in July, largely due to the cost of staples such as milk, cheese, eggs and bread.

Arla said it had increased the pre-paid milk price to its farmers due to the significant cost increases they faced.

However, it said "this has yet to secure an increase in milk production due to the continued and significant increase in on-farm costs and uncertainty created by the current global market conditions".

It said the price of fertiliser had increased by an average of 145 per cent, fuel by 134 per cent, feed by 36 per cent and energy by 346 per cent, compared to last year.

The company said it expected the second half of the year to be "even more challenging" due to "on-going inflationary pressure and political unrest".

During the first half of Arla's financial year, sales rose to £5.3 billion while pre-tax profit grew by nine per cent.

Arla said that global milk production was expected to decline further and "contribute to sustained high dairy prices", which was likely to further reduce consumption.

After a strong performance during the pandemic, fuelled by increased at-home consumption, the company said growth for its branded products like Lurpak was flat.

It said consumers were already buying less and "trading down" to cheaper products, most notably in the butter and spreadable category.

"With on-going inflationary pressure and political unrest negatively impacting global growth, Arla expects the second half of 2022 to be even more challenging as the global milk production is expected to decline further and contribute to sustained high dairy prices, which will likely further diminish consumer confidence and consumption," the company said in a statement.

Farmer Richard Yates, Shropshire NFU Council representative, said: “Like everyone, farming families have been affected by soaring prices across the board for fuel and power and other costs, plus on farm for inputs like fertiliser, seed and animal feed.

“We must remember that farmers are price takers – retail costs need to be addressed by the wider supply chain.

“The NFU had made strong arguments to our politicians to have a food and farming strategy that as well as addressing landscape, biodiversity and climate change, also speaks to concerns around food supply.”