Lurpak butter brand maker has announced milk prices will remain high due to a drop in global milk production and rising costs.
Arla reported a 17% increase in revenue for the first six months of the year, driven by significant price increases.
Shoppers recently expressed shock when the price of a 750g can of Lurpak exceeded £7 in some supermarkets.
Arla, Britain’s largest supplier of fresh milk and cream, said the war in Ukraine has increased costs for farmers.
Russia and Ukraine are among the world’s top exporters of fertilizers and animal feed, but the Kremlin invasion has disrupted supplies, causing prices to soar.
Fuel prices were already rising as energy demand picked up following the easing of Covid restrictions. But the war pushed them further up due to sanctions and severe transport disruptions.
Rising food prices pushed the UK inflation rate – the pace at which prices are rising – to a four-decade high of 10.1% in July, driven largely by staples such as milk, cheese, eggs and bread.
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Arla, the world’s fifth-largest dairy company, said it increased the prepaid price of milk for its farmers because of the significant cost increases they were facing.
However, it said: “This has yet to ensure an increase in milk production due to the continued and significant increase in operating costs and the uncertainty created by the current global market conditions”.
The company expects the second half of the year to be “even more challenging” due to “continued inflationary pressures and political unrest”.
In the first half of the financial year, revenue rose to €6.3bn (£5.3bn) while pre-tax profit rose 9% to €230m.
Arla said global milk production is expected to continue to decline and “contributes to persistently high milk prices,” which is likely to further reduce consumption.
After a strong performance during the pandemic, fueled by increased consumption at home, the company said growth for its branded products like Lurpak was flat.
Consumers are already buying less and “bartering” for cheaper products, especially in the butter and spreads category.
Earlier this year, Lurpak was trending on Twitter as customers complained about rising prices. A 750g tub of the spreadable butter is currently £6.75 with Tesco’s online delivery and £6 with Asda.
In July, some shoppers shared photos of the product covered in security tags, which Asda says was a decision for individual stores that may have noticed a particular product was missing.
At the time, Arla said it understood that food price inflation was hitting households hard, but farmers were also facing significant cost increases.
“While we don’t set prices on the shelves, we work closely with retailers to ensure our farmers receive a fair price for the milk they produce,” the company said.
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