Butter and Milk Prices Likely to Fall Sharply, Lurpak Maker Says

Arla Foods AB, the Danish maker of Lurpak butter, expects the cost of dairy products to fall sharply in 2023 in the UK after becoming a hot spot of inflation.

(Bloomberg) — Arla Foods AB, the Danish maker of Lurpak butter, expects the cost of dairy products to fall sharply in 2023 in the UK after becoming a hot spot of inflation.

The boss of the UK’s biggest dairy producer said he is confident that all the cost pressures facing its farmers have now passed though. The remarks open the potential for relief from eye-watering prices for everyday food items that accompanied a cost-of-living squeeze.

Milk, cheese and egg prices provided the biggest boost to rocketing food price inflation in December, official data showed. That reflected soaring cost of feed, fertilizer and fuel that farmers have tried to pass through to shoppers.

Food price growth picked up to 16.8% last month, the highest since at least 1989, even as overall inflation in the UK cooled. But Arla, which makes Lurpak butter and Cravendale milk, believes the pressure on dairy prices will start to ease.

“In dairy we’re not expecting to see any more inflation on consumer prices,” Ash Amirahmadi, managing director of Arla Foods UK, said in an interview. “We can be reasonably confident with that, and we should start to see the price of dairy products coming down as the cost savings that we’re making are passed on.”

He added: “As we go through 2023 we should start to see some easing, certainly what we charge our customers, and therefore I think they will also be keen to bring the prices down as well.”

The war in Ukraine has ramped up costs for UK farmers by lifting fuel prices and disrupting supplies of fertilizer. Prices for low-fat milk soared 46% in December from a year earlier. Cheese and curd is up 32.6%, while butter has leapt 29.3%.

However, there are signs that many cost pressures for farmers, including energy, have cooled markedly in recent months.

Tesco Plc Chairman John Allan has warned that some food producers are using inflation as an excuse to boost prices unnecessarily.

Amirahmadi said Arla has been transparent with supermarkets to show them the higher costs its farmers face before passing them on to customers.

“There’s no question that the conversations have been challenging, but I fully understand why they’re challenging because the supermarkets are trying to do this balance and they want to be satisfied that they’re doing everything in their power to minimize any costs that they ultimately have to pass on to their customers,” Amirahmadi said.

He added that dairy has been “disproportionately impacted” by global inflationary forces but that those pressures are “starting to ease from a market perspective.”

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