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
MARKET OVERVIEW
In 2020, the global macroeconomic environment was characterised by the uncertainty caused by Covid-19, expected
recessions looming across most markets, as well as continued uncertainties in global political and trade relations, most
notably exemplified by the Brexit preparations. During the year, lockdowns, curfews and other restrictive measures
impacted all parts of the global dairy supply chain from farmer to consumer, and the turmoil caused instability in
market milk prices during the first half of the year.
UNCERTAINTY IN THE
MACROECONOMIC ENVIRONMENT
When the pandemic hit the Western world in early
spring 2020, an economic slowdown had already
been forecasted by analysts, and the latest IMF
forecasts predict a Euro area GDP growth of -7.2
per cent in 2020. With the Covid-19 crisis hitting
many nations' economies hard, the depth of the
crisis and the speed of the recovery is still largely
uncertain, partly because government support
packages mitigate the impact in most countries.
The macroeconomic environment was further-
more impacted by the uncertainty caused by the
ongoing Brexit negotiations.
Average exchange rates, 2019-2020
2019
2020
Change
vs. 2019
Currency
EUR/USD
1.119 1.140
-1.8%
EUR/GBP
0.877
0.889
EUR/SEK
10.587 10.483
1.0%
-1.3%
The disruption following the pandemic caused
volatility in exchange rates across Arla's core
markets. The GBP, which was also affected by the
uncertainty caused by Brexit, declined and
fluctuated below pre-Covid-19 levels with an
average 1.3 per cent lower EUR/GBP exchange rate
in 2020 than in 2019. The USD declined modestly
during 2020 and was down by 1.8 per cent
compared to 2019. The SEK increased by 1.0 per
cent against the EUR during 2020 compared to
2019. Lastly, USD shortage resulted in the
devaluation of local currencies in some emerging
markets.
CHANGING CUSTOMER AND
CONSUMER BEHAVIOUR DRIVEN
BY COVID-19
During 2020, customer and consumer behaviour
changed significantly, causing volatility in retail
and food service demand for dairy products. As
restaurants, cafes and canteens closed during
lockdowns, consumers increased in-home
consumption and made fewer trips to grocery
stores, resulting in larger baskets at single
shopping trips and increased reliance on online
grocery shopping. Especially during the first
lockdowns in spring, uncertainty and anxiety drove
unprecedented growth in e-commerce and retail
dairy consumption. The foodservice sector was, on
the other hand, negatively affected by lockdowns
and curfews. In the UK, 14 per cent of sales in
the dairy category are now online, and the dairy
category is ahead of the total online grocery
development. Over a 12-week period in autumn
2020, online dairy sales grew by +89 per cent with
retailers seeing strong double-digit growth.
STABLE EUROPEAN MILK SUPPLY
FROM DAIRY FARMERS
European milk production and intake remained
stable despite the turmoil in markets and volatility
in demand caused by the Covid-19 pandemic.
European milk volumes grew by 1.7 per cent.
Milk farmers across Europe were able to keep
supply largely undisrupted and thereby played a
vital role in ensuring critical food supplies during
the pandemic.
VOLATILITY IN MARKET
MILK PRICES
2020 was characterised by market imbalances
caused by sudden fluctuations in demand, which
led to volatility and low predictability in European
market milk prices. In the second quarter, milk
prices dropped by 20-25 per cent across all
industry dairy products, but stabilised again in the
third quarter. However, the second round of
lockdowns in the last quarter caused hesitancy in
the market, and prices weakened again, particularly
in the mozzarella category.
Online development in the UK*
(per cent/EURM)
20
15
10
239
247
8%
8%
5
2018
2019
e-commerce channel share (%)
e-commerce value sales (EURM)
Source: Kantar, November 2020
487 500
400
14%
300
2020
200
100
European commodity prices in 2020
(EURM)
4,000
3,500
3,000
2,500
2,000
1,500
Q1 Q2 03
2019
Q4 Q1 Q2 Q3 Q4
2020
Yellow cheese
â– Mozzarella
56 ARLA FOODS ANNUAL REPORT 2020
* Source: Kantar, November 2020View entire presentation