From the 2015 recession to developing growth in 2016

2015 was a difficult year for Finnish dairy farmer entrepreneurs and Valio. The total of the farmers’ net sales decreased by 16.5% on the previous year due to the fall in the price paid for raw milk.

The difficult situation in which Valio’s owner entrepreneurs found themselves stemmed from the weakening of Valio’s operating environment impacted by a number of factors simultaneously.

The abolition of EU milk quotas led to overproduction in the large Central European dairy countries resulting in a global excess of supply over demand for dairy products. The decrease in demand was caused by e.g. the Russian embargo and weakening consumer purchasing power in Asia. Oversupply depressed global milk prices which affected Valio in terms of low export prices, and an increase in cheap imports and tough price competition on the Finnish market. Consumer Purchasing power was also low in Finland.

The share of products made from Finnish milk of total consumption decreased. The share of imported cheeses exceeded 50% while that of imported yoghurts stood at just under 30%.

New export markets sought in 2016

Valio’s competitive advantages on Finnish markets and in exports are its innovative products, and the EU’s cleanest raw milk and its traceability. Valio is Finland’s biggest food exporter and sells products to nearly 60 countries. Valio’s share of Finland’s dairy product exports was around 97% in 2015, and the company explored new export markets and started making preparations to enter them.

A deep understanding of consumer needs and launching sought-after innovations will support the goal for growth in Finland and Sweden. In Denmark, Valio will grow in the lactose free products category.

Global export markets are being developed working together with industrial customers, and the goal is also to develop new consumer product markets.

Valio has subsidiaries in Sweden, Denmark, Russia, the Baltic States, the US and China. The company runs manufacturing operations for local products in Russia (processed cheese plant) and Estonia (cheese plant and dairy). In Estonia, Valio is the market leader or number two in all product categories. In China, Valio is an important supplier of demineralised whey powders with its Valio Demi™ range employed e.g. as ingredients in baby foods. Valio is recognised as a supplier of quality cheese and butter in the US.

Valio’s export capacity maintains self-sufficiency

Finland produces roughly the same volume of milk as it consumes in the form of dairy products. In markets with free competition the share of imported dairy products has continuously increased, and for Finland to remain self-sufficient in dairy the country has to be able to export a volume equivalent to imports.

Valio’s ability to compete on international markets secures self-sufficient milk production and enables farmers to make a living from agriculture in large parts of Finland.

Owned by dairy co-operatives, Valio Ltd’s mission is to pay all profits from its operations to its owner entrepreneurs. Valio takes in and processes all the milk produced by the owner entrepreneurs, and pays them a uniform price irrespective of the location or size of the farm.

Key figures 2015

Valio Group net sales for 2015 decreased by 11.9% on the previous year to stand at 1 718 million euros (2014: MEUR 1 950). Net sales fell by 12.3% in international markets and 11.7% in Finland. Exports and international operations accounted for around 35% of net sales.

The Valio Group milk margin** stood at 806 million euros (2014: MEUR 974). The milk return* fell to 36.5 cents/litre (2014: 43.7 cents/litre), while the price paid for raw milk stood at 38.5 cents/litre (2014: 45.4 cents/litre). Valio was nevertheless able to pay a much higher price for raw milk compared with the EU average (31.8 c/l).

Valio Group’s equity/assets ratio was 42% (2014: 42%). Investments totalled 119 million euros (2014: MEUR 152).

The milk volume taken in by Valio from its owners totalled 1 899 million litres (2014: 1 929 million litres).

In 2015, Valio paid its owner entrepreneurs 739 million euros (=43% of net sales), down 146 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.

Annikka Hurme
CEO
Valio Ltd