Arla Foods AB, the Danish dairy processing giant, expects the cost of dairy products in the UK to fall sharply in 2023 after becoming a hotbed of inflation.
he boss of Britain’s largest milk producer said he was confident the cost pressures farmers were facing were now over.
Milk, cheese and egg prices provided the biggest boost to skyrocketing food price inflation in December, official data showed. This reflected the rising costs of feed, fertilizer and fuel, which farmers have tried to pass on to buyers.
Food price growth in the UK rose to 16.8% last month, the highest since at least 1989, even as UK headline inflation slowed. But Arla, which makes Lurpak butter and Cravendale milk, believes the pressure on milk prices will ease.
“For dairy, we do not expect further consumer price inflation,” said Ash Amirahmadi, Managing Director of Arla Foods UK, in an interview. “With that, we can be reasonably confident, and we should start to see the price of dairy go down as the cost savings we’re making are passed on.”
He added: “As 2023 progresses we should start to see some relaxation of certainly what we’re charging our customers and so I think they’ll also be interested in seeing prices reduced as well.”
The war in Ukraine has pushed up costs for British farmers by raising fuel prices and disrupting fertilizer supplies. Low-fat milk prices rose 46% in December from a year earlier. Cheese and curd are up 32.6%, while butter is up 29.3%.
However, there are signs that many cost pressures facing farmers, including energy, have cooled significantly in recent months.
Tesco Plc chairman John Allan has warned that some food manufacturers are using inflation as an excuse to inflate prices unnecessarily.
Amirahmadi said Arla has been transparent with supermarkets to show them the higher costs farmers face before passing them on to customers.
“There is no question that the talks have been challenging but I fully understand why they are challenging because supermarkets are trying to strike that balance and they want to be satisfied that they are doing everything in their power to cut costs minimize which they ended up having to pass on to their customers,” said Amirahmadi.
He added that dairy has been “disproportionately hit” by global inflationary forces, but that these pressures are “gradually easing from a market perspective”.
Bloomberg
