ARLA FOODS ANNUAL REPORT 2017 MESSAGE FROM THE CHAIRMAN OF THE BOARD OF DIRECTORS A significant year on a positive journey 2017 was a good year for both Arla dairy farmers and dairy products, supported by a much-needed recovery in the milk price after the tough times farmers experienced last year. Our business remains focused on adding value to our products and responding to changing market dynamics. 6 Milk prices improved throughout 2017 and Arla succeeded in closing the year with the highest milk price in three years. Fat prices outperformed protein for the first time, with butter prices rising far beyond expectations, highlighting a significant change in market demands. Although butter prices declined modestly at the end of the year, they remain at a historically high level. Milk volumes were virtually unchanged for the year, with lower levels in the first half offset by increases in the second half as farmer owners responded to the recovering milk price. Declining prices on the world market have begun as we enter 2018, meaning that Arla will need to continue its efforts to value-up products in order to secure highest possible returns to farmer owners through the milk price. Nevertheless, even if price declines persist in the months to come, we continue to expect reasonable price levels. Operating in a consumer-driven market It is crucial for us to understand that we operate in an extremely consumer-driven market, where demands on transparency are high and there is a growing interest from both consumers and customers in the origin of dairy products. They seek answers regarding how we treat our cows, what we feed them and how we operate our farms in relation to environmental issues. In this market, being a farmer-owned cooperative is an immense strength, but only if we succeed in keeping a firm connection between consumers, customers, farmer owners and our cooperative. The value of our high standards This is the reason why Arlagården® Plus was launched in 2017 as an essential tool in securing our continued growth. This quality assurance programme delivers data that enables us to provide fact-based insights about the high standards on our farms. We closed the first round of data collection in December 2017, and the participation from our farmer owners in all owner countries was promising. 75 per cent of all farmer owners delivering milk in November and December 2017 participated in the programme, thereby qualifying to receive an additional 1 EUR-cent/kg of milk. This is a result to be proud of as it demonstrates that our farmer owners understand the signs from the market and meet demands from customers and consumers. Our expectations are high for 2018, where Arlagården® Plus will continue and grow into being an important instrument in securing Arla’s position as a unique and industry-leading cooperative, adding even more value to our brands and products. Evolving our cooperative Throughout 2017, we have seen our owner strategy evolve. The Board of Representatives adopted a new governance structure, an eligibility and election procedure and an annual meeting cycle. The first elections in our new governance structure were also conducted. Two Area Forum rounds, consisting of all elected representatives in each area, increased cross-border interaction and were very positively received for all involved. In the coming year, our goal is extend this strategy even further, amending the Articles of Association and offering direct membership for all owners, respecting that as we strive for equality across borders, all should be working under the same Articles. Direct membership for all farmer owners will further strengthen our democracy as we step up our efforts to act as a truly global company. As part of this process, our elected farmer owners are taking on increasing responsibility and will continue to develop the relevant education programmes needed to further strengthen their roles going forward. Embracing the future Given the significant market volatility of recent years, it has become increasingly difficult to predict milk volume developments as well as how the market will evolve. We expect milk prices to decline during the first half of 2018. However, Arla is well equipped to react, in line with the Good Growth 2020 strategy. The market is changing and becoming ever more consumer-driven, and we must work continuously to ensure that our brands and products remain strong and competitive. We are doing it together, as farmer owners in cooperatives have done for centuries. ÅKE HANTOFT Chairman of the Board of Directors Performance price EUR-CENT/KG 38.1 38.1 33.7 30.9 2015 2016 2017 MANAGEMENT REVIEW
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