Economic effectiveness

Valio Oy, owned by milk cooperatives, is responsible for paying all the proceeds of its operations to its owner-entrepreneurs.

Economic effectiveness

Valio and its owner entrepreneurs generate well-being in Finland

Valio Ltd and the dairy farmer entrepreneurs who own the company are essential engines for the financial well-being of the Finnish economy.

Valio is owned by 17 dairy co-operatives, eight of which belong to Valio Group and seven of those supply all their raw milk to Valio for processing. One of the 17 is a second-degree co-operative that has no dairy farmer entrepreneurs as members. Valio Group co-operatives comprise just under 6 000 dairy farmer entrepreneurs and Valio collects around 80% of Finland’s raw milk.

Valio’s competitors own small numbers of Valio shares and have no authority in Valio.

The number of Valio dairy farmer entrepreneurs decreased by nearly 8% compared with 2015.

Valio’s mission is to pay the profit from its operations to its owner entrepreneurs. In 2016, Valio paid 43.7% of its net sales to those 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 alone employs some 25 000–30 000 people, and the investments of Valio and its dairy farms total around 250–300 million euros per year. Over one billion euros was retained in Finland in 2016 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. This is expressed as the milk return* and employed by Valio’s Board of Directors to determine 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 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% to stand at 580 million euros in international markets and by 5% to 1 060 million euros in Finland.

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 was nevertheless able to pay the dairy farmer entrepreneurs a price for raw milk 8 cents higher than the EU average in 2016.

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 (=43.7% of net sales), 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.

Milk generates 60% of entrepreneurial income in agriculture

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. Grass farming is well suited to the Finnish climate and the crops are plentiful thanks to long summer days.

More than 60% of entrepreneurial income in agriculture stems from milk*. In the Kainuu and Lapland regions, around 80% of agricultural income comes from dairy farms’ milk and beef production**.

The price paid for raw milk remained low in 2016 due to the challenging market conditions: exports to Russia remain on hold and milk production volumes increased in the EU as milk quotas were abolished.

The average price paid by Valio for raw milk was 38.2 cents/litre. Dairy farm profitability declined and the entrepreneurs’ income decreased, although supply costs also fell slightly. The average profitability factor for different types of agricultural production*** was around 0.32 (2015: 0.2), in milk production 0.38.

Summer 2016 yielded a good-sized crop of grass silage but it was of mediocre quality. The calculated average yield of the cows continued to rise and the milk’s nutrient content also increased slightly.

* Entrepreneurial income includes agricultural subsidies.

** Agricultural income includes that from farm production sales, not including subsidies.

*** The profitability factor indicates the share of the required wage for farmers (EUR 15.6/hour) and return on equity (4.35%) realised (Luke Taloustohtori 2015).