Arla Foods has warned that global milk production is expected to decline further and contribute to sustained high dairy prices, which will likely further diminish consumer confidence and consumption.

The global milk processor and manufacturer of brands such as Lurpak, Apetina and Castello published its half-year trading figures at the end of August. It said that the first half of 2022 was dominated by inflation and uncertainty throughout the global dairy supply chain that accelerated late spring and throughout the summer.

During this period, Arla was able to increase its pre-paid milk price to farmer owners as they face significant production cost increases in feed, fertilizer and fuel. Arla’s average pre-paid milk price to farmer owners increased 30.9% in the first half of 2022 compared to the same period in 2021, with further increases over the summer.

However, the report noted that the continued global volatility has resulted in a declining global milk supply despite a stable demand. Arla’s milk volume decreased to 6.8 billion kg compared to 7 billion kg in the same period last year, which the company claims is in line with global trends.

Overall, total Arla Group revenue was €6.38 billion for first half of 2022, up 17% compared to the first half of 2021. This growth was driven almost exclusively by significant price increases in Arla’s retail and food service and commodity trading businesses.

With on-going inflationary pressure and political unrest negatively impacting global growth, Arla Foods expects the second half of 2022 to be even more challenging. The company is adjusting its expectations for the full year of 2022, with its net profit share expected to reach 2.8% to 3%.