A series of lean years for Finnish dairy farmer entrepreneurs and Valio Ltd continued in 2016 but the downward trend has stabilised. Despite the challenges, Valio was able to pay its owners, the dairy farmer entrepreneurs, around 8 cents above the European average per litre of raw milk.
Valio Group net sales for 2016 decreased by 4.7% on the previous year to stand at 1 638 million euros. The weakness of the dairy sector was primarily due to the imbalance in global markets. The Russian market remains inaccessible, demand in Asia continued to be poor, and the oversupply of milk in the EU is ongoing. The Finnish market is subject to fierce competition from imported products.
“The company’s successful cost savings program also promoted Valio’s ability to pay its owner entrepreneurs a higher price for raw milk than the European average. In 2016, Valio Ltd reduced its costs in Finland by 6% compared with 2015 excluding the price paid for raw milk. We aim in line with Valio’s owner strategy to keep the price paid for raw milk to the owners as stable and predictable as possible. In the rest of the EU, the fluctuation of the raw milk price has exceeded 12 cents/kg and the lowest recorded average price was close to 25 cents/kg. Valio’s price paid in 2016 was 38.1 cents per litre,” says dairy farmer Vesa Kaunisto, Chairman of the Board at Valio.
In 2017, Valio is seeking growth for example by entering new markets for consumer products.
Valio’s competitive advantages include sustainable milk production and products promoting well-being
Valio’s competitive advantages both in Finland and abroad are special products and concepts that promote well-being, and the cleanest milk in the EU.
“Lactose free Valio Eila® products and Valio Gefilus® products containing the world’s most researched lactic acid bacteria all benefit stomach well-being and are our leading export brands. ValSa® milk salt is a unique innovation that promotes public health. This milk mineral mix with the low sodium content is combined with production expertise at Valio to create tasty cheese and spreads. The first ValSa® products in Finland are Valio Oivariini® less salt and Valio Polar® slices and blocks, and there are more lower salt products to come in our domestic market in 2017. The new snacks plant in Riihimäki will start production this year, lending R&D further encouragement to develop tasty snack products with less sugar. Demand for organic products is expected to increase and for protein-rich products will probably remain strong. Valio launched 126 new products in 2016, including Valio MiFU® cooking crumbs, a completely new kind of product that became market leader as a new type of protein source for meals,” Valio CEO Annikka Hurme says of the outlook.
“There are some indications of the beginning of an economic recovery in Finland and Europe, which will surely increase interest in high-quality value added products. By global comparison, Valio manufactures luxury class dairy products from GMO-free raw milk whose production is virtually soy free and adds no unnecessary antibiotics. Consumers are interested in food, nutrition and sustainability, and actively challenge the food industry and brands to take their wishes on-board. An active discussion on food creates a good foundation for developing our business.”
Key figures 2016
Valio Group net sales for 2016 decreased by 4.7% on the previous year to stand at 1 638 million euros (2015: MEUR 1 718). Net sales fell by 4% in international markets and 5% in Finland. Exports and international operations accounted for around 35% of net sales. Valio exports from Finland totalled 353 million euros by value, accounting for nearly 26% of Finland’s food exports (Source: Elintarviketalous 2017).
Net sales for the subsidiaries developed in Sweden by +4% (MEUR 98), Baltic States +9% (MEUR 93), US -2% (MEUR 72), Russia +5% (MEUR 66), China -27% (MEUR 30), and Denmark +11% (MEUR 4). The fall in the value of sales in China was due to decreased demand for industrial powders and their low global market price. In the US, net sales were affected by fierce price competition and the currency exchange rate.
The Valio Group milk margin** stood at 772 million euros (2015: MEUR 806). The milk return* fell to 36.1 cents/litre (2015: 36.5 cents/litre), while the price paid for raw milk stood at 38.1 cents/litre (2015: 38.5 cents/litre).
Valio Group’s equity/assets ratio was 43% (2015: 42%). Investments totalled 127 million euros (2015: MEUR 119).
The milk volume taken in by Valio from its owners totalled 1 861 million litres (2015: 1 899 million litres).
In 2016, Valio paid its owner entrepreneurs 716 million euros, down 23 million euros on the previous year.
* Milk return = (Milk margin less the requirement for depreciation of fixed assets i.e. financing requirement for investments)/milk volume supplied by the owners.
** Milk margin = Net sales less other costs excluding depreciation and the price paid for raw milk and interest on shareholder loan paid to owners.