Farmers' cooperative Arla Foods, one of the world's biggest dairy firms, plans to pay out its entire 2018 net profit of up to €310 million ($363 million) to its members after one of the hottest and driest summers on record.
The firm, owned by 11,200 farmers in Denmark, Sweden, Germany, Britain, Luxembourg, the Netherlands and Belgium, traditionally pays only a part of its profit to owners, but said it would make an exception this year due to the drought.
Impact Of Drought
European farmers are trying to recoup losses caused by a summer heatwave that has shrunk cereal harvests and dried out pastures, leaving some on the edge of bankruptcy and shutting the EU out of lucrative export markets.
"It is obvious farmers have had a tough time acquiring fodder, and it's been more expensive. This puts the farmers' economy under pressure," Arla Chief Executive Peder Tuborgh told Reuters.
Arla expects to make a full-year net profit of up to €310 million, or 3.2% of its turnover. Last year, the company paid out €127 million to its members of out of a net profit of 321 million.
For the first half of this year, Arla made a net profit of €120 million on revenue of 5.1 billion, with results held back in part by a weaker British pound.
Arla, which makes about 25% of its sales in Britain, said the weakening of the pound in the wake of Britain's June 2016 vote to leave the European Union cost the company around €150 million per year.
Brexit Concerns
Earlier this year, concerns about Brexit contributed to the launch of a cost-cutting programme at Arla aimed at saving €400 million by the end of 2020.
"It is clear that a no deal (Brexit) would put a lot of industries, including ours, in a completely different situation, but I won't speculate on that at this moment. The forces that will be unleashed across industries will be enormous and negative," Tuborgh said, referring to the possibility Britain could crash out of the EU without a deal on future relations.
He added Arla was preparing for all Brexit eventualities.
Earlier this year, Arla said it aimed to increase investments this year by almost 60% to €527 million to meet growing global demand for dairy products and consumers' shift to healthier options.
Arla competes with food giants such as Danone and Nestle.
News by Reuters, edited by ESM. Click subscribe to sign up to ESM: European Supermarket Magazine.
