The entire profit from Valio’s business is paid to the company’s owners, namely the milk producers who constitute Valio’s dairy co-operatives.
Valio’s entire profit goes to milk producers
The income accumulated from all Valio products sold in the markets is transferred to the dairy co-operatives in the price paid for raw milk, and onward to Valio milk producers.
Owned by Finnish milk producer co-operatives, Valio Ltd collects some 85% of Finland’s raw milk, of which it is obliged to sell around 10% to its competitors at cost price, if they want to buy.
Valio Group comprises 8 dairy co-operatives, and Valio Ltd focuses on processing and marketing the milk they produce. At the end of 2014, Valio Group encompassed some 7 100 milk producers (2013: 7 500).
Valio’s financial success is measured by the value added to the milk produced by the owners that have a business relationship with Valio. Expressed as the milk return*, it also determines the raw milk price paid to Valio Group dairy co-operatives. The co-operatives then pay the milk producers.
Valio’s mission is to process the milk produced by its owners as profitably as possible, striving to pay the producers the highest raw milk price in the EU. The company has achieved this for almost the last 10 years, until Russia’s import embargo imposed in August 2014, low global market prices for industrial products, and shrinking purchasing power in Finland started to hamper Valio’s net sales, profitability and ultimately the price paid for raw milk.
The market success of Valio products benefits Finnish milk producers and the whole of Finland. Through the price paid for raw milk, plus investment, purchasing, taxes and salaries, more than one billion euros is retained in Finland annually as a result of Valio’s operations.
Valio Group’s milk production and processing chain employs some 30 000 people in Finland, accounting for around 10% of the workforce in the country’s food production chain.
Milk production is the most important provider of agricultural livelihood in Finland.
2014 was a difficult year for Valio
Valio Group net sales for 2014 stood at 1 950 million euros (2013: MEUR 2 029), down 3.9% on the previous year. Net sales decreased by 9.0% in international markets and 0.8% in Finland. The Valio Group milk margin** stood at 974 million euros (2013: MEUR 1 026).
The Valio Group milk return* fell to 43.7 cents/litre (2013: 48.0 cents/litre), while the price paid for raw milk stood at 45.4 cents/litre (2013: 47.5 cents/litre). The collapse in the latter half of the year is not fully visible in these figures as they were distorted by a record-high first half.
Valio Group’s equity/assets ratio was 42% (2013: 47%). Investments totalled 152 million euros (2013: MEUR 118).
The milk volume taken in by Valio from its owners totalled 1 929 million litres (2013: 1 888 million litres).
In 2014, Valio paid Finnish milk producers 885 million euros (=45% of net sales), down 22 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.
Milk is an important source of livelihood in Finland
Milk production is the only form of agriculture that can be practised everywhere in Finland. In large parts of the country, it is the only profitable business in the agricultural production sector.
Milk is an ideal source of nutrition for Finns, as grass grows throughout the country to feed the cattle and there is a plentiful supply of clean drinking water.
Income from dairy farming accounts for almost 42% (2013: 41%) of that from all agriculture in Finland. In Kainuu and Lapland, around 80% of agricultural income comes from dairy farms’ milk and beef production.
The share of income derived from milk is on average 66% in Central Finland, Northern Ostrobothnia, North Savo and North Karelia.
Fuel, silage and grain prices fell by some 10–30% during 2014, varying by product group and type. Grain prices in 2014 were nevertheless slightly higher compared with the period 2000–2010, during which they hit their lowest point.
The decrease in purchase prices was not, however, sufficient to offset the decrease in the price paid for raw milk in the latter half of the year.
Preliminary accounting data indicate that the milk production profitability factor* stood at 0.57 in 2014 (2013: 0.52; 2012: 0.60).
Measured by the production profitability factor, milk was the second most profitable sector of agricultural production after greenhouse farming in 2013. According to the preliminary accounting data for 2014, milk became the most profitable.
The average profitability factor for different types of agricultural production was 0.4 in 2013, and the forecast for 2014 is 0.36.
Summer 2014 yielded a good size and quality grass silage crop. This was the main reason why the calculated average yield of the cows, and the nutrient content of the milk, increased compared with the previous year. The volume of milk delivered to dairies grew in 2014 by around 3% and the average yield of the cows by 2.4%, compared with 2013.* The profitability factor indicates the share of the required wage for farmers (EUR 14.5/hour) and return on equity (5.3%) realised (Taloustohtori 2013).