Valio Group key figures
Valio Ltd and the dairy farmer entrepreneurs who own the company are essential engines for the financial well-being of the Finnish economy.
Valio and its owner entrepreneurs generate well-being in Finland
Valio is owned by Finnish dairy co-operatives. Eight of these, amounting to some 6 400 dairy farmer entrepreneurs, supply all their raw milk to the company. Valio collects just under 80% of Finland’s raw milk.
The number of dairy farmer entrepreneurs decreased by nearly 7% compared with 2014.
Valio’s mission is to pay the profit from its operations to its owner entrepreneurs. In 2015, Valio paid 43% of its net sales to the owner entrepreneurs.
Valio and its owner entrepreneurs (=Valio Group) promote the livelihood of Finns and Valio is the key customer of hundreds of Finnish SMEs. Valio’s milk supply chain employs some 25 000–30 000 people, and the investments of Valio and its dairy farms total around 250–300 million euros per year. Around 1.7 billion euros was retained in Finland in 2015 stemming from Valio Group’s operations.
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 goal is to pay its producers the highest raw milk price in the EU.
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.
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.
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 fierce price competition on the Finnish market. In addition, consumer purchasing power was 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 that of Finland’s food exports around 29%. The company explored new export markets in 2015 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 increased continuously, 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.
Milk provides a large part of Finland with a livelihood
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 43.3% (2014: 42%) of that from all agriculture in Finland. In the Kainuu and Lapland regions, 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.
The prices of supplies and services employed in production decreased by 2.1% in 2015. Those of goods and services deployed in investments rose by 0.6%.
The prices of fuel (-23.2%), silage (-5.1%) and grain (-7.4%) fell faster compared to the largely downward development of other production input prices during 2015. The downward trend in the grain price stabilised considerably compared with its movement during 2014.
The decrease in purchase prices was not, however, sufficient to offset the decrease in the price paid for raw milk.
The milk production profitability factor* stood at 0,3 (0.6 in 2014).
The average profitability factor for different types of agricultural production was 0,2 (0.4 in 2014).
Summer 2015 yielded a good-sized crop of grass silage, but rain hampered harvesting in Central and Northern Finland. The calculated average yield of the cows and the nutrient content of the milk both increased slightly compared with the previous year. The volume of milk delivered to dairies grew in 2015 by around 1.6% and the average yield of the cows by 1.5%, compared with 2014.
* The profitability factor indicates the share of the required wage for farmers (EUR 14.5/hour) and return on equity (5.3%) realised (Taloustohtori 2014).