Arla Foods Annual Report 2020
Management Review
Our Strategy
Our Brands and Commercial Segments Our Responsibility Our Governance
Our Performance Review
Our Consolidated Financial Statements Our Consolidated Environmental, Social and Governance Data
GLOBAL INDUSTRY SALES
The flexibility of our Global Industry Sales business model enabled us to quickly shift milk volumes from Global Industry Sales into retail to meet increasing
retail demand caused by Covid-19 and ensure delivery of food supplies. As a consequence, the share of milk solids sold by Global Industry Sales decreased
by 2.3 percentage points compared to last year, but this was compensated by the higher volumes sold in our retail business. During 2020, we also succeeded
in increasing the proportion of higher-value commodity products sold.
Revenue,
EURM
Total volume of bulk
products (tonnes)
1,541 362
2019: 1,662
2019:385
Global industry share
22.7%
2019: 25.0%
Revenue split by segments
20%
1%
6%
40%
33%
2020
2019
Raw milk
33%
34%
Powder
40%
36%
Cheese
20%
21%
Butter
6%
6%
Other
1%
3%
In addition to our main sales channels, Arla conducts
business-to-business sales to other companies for use
in their production, as well as industry sales of cheese,
milk powder and butter. We refer to these activities as
Global Industry Sales (formerly referred to as 'Trading').
Flexible business model proved valuable
Our Global Industry Sales business model allows us to
manage seasonal and regional variability in owner
milk production and balance our milk throughout the
year, while it provides the capacity and capability for
our farmer members to grow.
When the initial Covid-19 lockdowns caused
significant uplifts in retail demand across all countries,
the flexibility of our business model enabled us to
ensure that we had enough milk to produce the
branded and retail products needed to meet the
increased and very volatile demand.
Reduced revenue due to
changing market conditions
As a result of the increased demand from the retail
business the overall share of milk solids sold by
our Global Industry Sales fell from 25.0 per cent
last year to 22.7 per cent in 2020, equivalent to
approximately 360,000 tonnes of product. As a result
of this volume reduction as well as the general market
conditions caused by the pandemic, revenue
declined to EUR 1,541 million from EUR 1,662
million, and now represents 14.2 per cent of Arla's
total revenue. Despite these declines, our programme
of strategic investments in support of Global Industry
Sales has meant that the proportion of higher-value
commodity products sold has started to increase. In
2020, mozzarella, the first of our strategic invest-
ments to come on stream, represented approximately
18.5 per cent of volume (12.5 per cent of sales), up by
5.3 percentage points on last year.
Unstable commodity markets
Highly affected by the pandemic, the global
commodity markets were volatile in 2020. The start
of the year showed strong global demand and rising
prices across all categories, but this came to a halt
in March when first export-related logistics issues
followed by lockdowns resulted in short-term
disruption in supply chains. This caused a sharp price
collapse, but in the third quarter of 2020, prices
recovered to slightly below 2019 levels and remained
stable until the last quarter of the year.
Towards the end of 2020, the second round of
lockdowns caused understandable hesitation in
the market and prices started to weaken again,
particularly in the mozarella category, which is
especially impacted by foodservice restrictions.
"THE GLOBAL PANDEMIC
HAS DEMONSTRATED THE
IMPORTANCE AND AGILITY
OF GLOBAL INDUSTRY
SALES AS WE WERE ABLE
TO MANAGE THE MILK
BALANCE TO HANDLE THE
EXTREMELY VOLATILE
CONSUMER DEMAND
WHILST ENSURING THAT
WE CONTINUED TO ADD
VALUE TO ALL MEMBER
MILK DELIVERED TO THE
COOPERATIVE."
Thomas Carstensen
Senior Vice President, Milk & Trading
European commodity prices 2019-2020
(EURM)
4,500
4,000
3,500
3,000
2,500
2,000
1,500
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2019 2019 2019 2019. 2020 2020 2020 2020
SMP
WMP
Yellow Cheese
Butter
â– Mozzarella
30 ARLA FOODS ANNUAL REPORT 2020View entire presentation