Market trends

Background

2018: Challenging year for Finnish dairy firm Valio

Valio, the biggest dairy business in Finland looks back on 2018. “Supply exceeded demand, which was reflected in the prices for both Finnish and export sales,” according to the company.

Valio, offering the taste of Nordic nature since 1905, is a brand leader and the biggest dairy business in Finland and a major player in the international dairy ingredients market. The company is owned by dairy cooperatives comprising some 5,100 dairy farmers. Valio is Finland’s biggest food exporter.

Growth in sales

In 2018, the company reached a turnover of € 1,734 million, which means a growth of 1.5% compared to the previous year. Net sales in Finland grew by half a percent, and net sales abroad grew by 3%. The company’s milk margin* was € 800 million (797) and our milk return** was 38.4% per litre (37.9).

Settlement on compensation process

The situation on the global milk market, however, remained challenging. Supply exceeded demand, which reflected in the prices for both Finnish and export sales. It was a challenging year for Valio’s owner-entrepreneurs: milk prices fell and the summer was record-setting hot and dry. Valio and 4 other dairies reached a settlement in late 2018 and early 2019 in a compensation process regarding base milk pricing. One-off compensation pay-outs resulting from this process were a burden on Valio’s operational profits. “The greatest challenges arise from the dairy industry’s operating environment. Global milk production continued to grow, and last year we saw that weather conditions can have a significant effect on production conditions, both in Finland and around the world. The feed shortage resulting from the record-dry summer was an additional burden on the farms’ financial situation,” says Valio CEO Annikka Hurme.

In October 2018, Valio set an ambitious climate goal: wanting to cut milk’s carbon footprint to zero by 2035. Photo: Valio
In October 2018, Valio set an ambitious climate goal: wanting to cut milk’s carbon footprint to zero by 2035. Photo: Valio

Product innovation: soy and ice

From a renewal and innovation perspective, 2018 was strong. In February 2018, the company launched our plant-based Valio Oddlygood® products in Finland and Sweden. In March, Valio returned to the ice cream market with its Valio Jäätelöfabriikki™ premium ice creams after a 14-year break. In summer, Valio renewed its Valio ProFeel® range of protein products and introduced numerous new protein snacks. Of its more traditional categories, basic milk products continued to the downward trend, consistent with market trends. The company’s foreign operations produced a turnover of € 669 million. Valio’s growth continued especially in Sweden, the Baltics, Russia, and China. “In 2018, our turnover in Sweden grew by 10% thanks to added-value products, such as lactose-free products. Our turnover growth in the Chinese market was also strong. Valio remains an unknown brand in China, and it takes time to build recognition and create profitable growth. In Russia and the USA, we are focusing on improving operational profitability. Development in these markets in 2019 has remained along those lines,” says CEO Annikka Hurme.

Focus on climate and animal welfare

Since the beginning of 2018, Valio began paying a sustainability bonus of 1 cent per litre of milk to dairy farmers that commit to, among other things, planned and preventive animal healthcare with a veterinarian. The Intergovernmental Panel on Climate Change (IPCC) report, released in late 2018, brought global warming and the means to mitigate it to the forefront. In October 2018, Valio set an ambitious climate goal: “we want to cut milk’s carbon footprint to zero by 2035.”

“We know the climate and environmental impacts of milk production, and we are actively working to reduce them. My vision is that dairy farmers and other agricultural operators can come together and become a part of the solution to climate change and the future food supply. As we work towards reducing milk’s carbon footprint, we also want to introduce new points of view when assessing food production’s climate impacts: the nutrition angle should be considered when looking at the carbon footprint of food,” continues CEO Mr Hurme.

Proceeding in the right direction

The development of Valio’s business in 2019 has started with a positive trend. Net sales growth early in the year has been fuelled by, among other things, rising milk powder prices in the global market. Valio’s 3-year project to improve cost-effectiveness and competitiveness and through them, the milk return, was started in 2018 and is proceeding as planned.

Source: Valio