Arla CEO says rising milk supply to keep prices in check

COPENHAGEN, Feb 22 (Reuters) - Arla Foods, one of Europe’s biggest dairy companies, said on Wednesday a rising supply of milk on world markets is likely to rein in further gains in prices that have increased nearly 50 percent since a slump last year.

A co-operative headquartered in Denmark, Arla is Britain’s largest and the world’s seventh-largest dairy company in terms of turnover. It said it emerged stronger from the crisis year of 2016 which saw highly volatile milk prices.

Milk production fell in Europe in the second half of last year, after scrapping of European Union milk quotes the year before had resulted in a sharp drop in prices.

But with less supply, Arla said it had managed to increase its milk prices by around 40 percent in the last six months.

“Milk prices are back on track,” said Chief Executive Peder Tuborgh, although he remained cautions on further gains.

“The price level we’re now seeing on the big markets is flattening out. I think we should be happy, if we can keep prices at the current level,” Tuborgh told Reuters.

The GlobalDairyTrade (GDT) benchmark milk index showed milk prices are up 47 percent since July, near their highest in 2-1/2 years.

Tuborgh said Arla’s owners, 11,900 farmers in seven countries in northern Europe, are now emerging from a state of crisis.

“Milk prices are currently at a level that is sustainable for the whole business, including our farmers,” he said.

He expects farmers to raise milk production over the summer in Denmark and Germany, with more supply coming from Sweden, Britain and the Netherlands later in the year, although he did not foresee a “flooding of the market” similar to last year.

Arla Foods has mitigated the impact of low milk prices by cutting costs and moving more into added-value products -- turning milk into more expensive goods such as its Lurpak butter and Castello cheese.

Net profit grew 21 percent to 356 million euros last year, despite sales falling 7 percent to 9.57 billion euros.

Tuborgh expects sales to grow “significantly” this year, as the company benefits from higher milk prices and gains market share in the Middle East, sub-Saharan Africa, China and Southeast Asia.

Measured by milk volume, Arla Foods is the world’s fourth biggest dairy company, after Dairy Farmers of America, New Zealand’s Fonterra and Lactalis of France. (Editing by David Evans)