FDBusiness.com

For the first time, Arla Foods has paid out a monthly incentive to its farmer owners’ milk price rewarding climate activities and other sustainability efforts being made on their farms, using a data-driven and science-based points system. Farmers have implemented more activities than first anticipated and based on the current level, Arla stands to pay out Eur2.2 billion until the end of 2030 for farmers’ sustainability activities. The cooperative has, however, earmarked a bigger amount as it expects its farmer owners to raise the bar significantly higher.

Arla farmers taking the most action on climate will now receive a higher price for their milk.

Last year, Arla introduced its new groundbreaking Sustainability Incentive model which rewards farmers for the climate and environment-enhancing initiatives they undertake. And now Arla starts paying out this new monthly incentive.

In other words, the farmers who do the most for climate and environment will receive the highest price for their milk. And consequently, the consumers are guaranteed that a part of the price they pay for Arla’s products helps reward and motivate a faster transition to more sustainable dairy farming.

Arla has earmarked up to 500 million EUR each year to reward and motivate farmers, of which 300 million is now activated. The size of the incentive depends on the individual farmers’ efforts, measured in points.

Based on the current points score, Arla will until the end of 2030 pay a total of at least Eur2.2 billion for sustainability activities on farm. However, the amount is expected to increase as farmers, motivated by the incentive, make further climate improvements.

Arla’s CEO, Peder Tuborgh, commented: ”I have been looking forward to this. The Sustainability Incentive is a large step towards linking economy and climate and nature improvements on farm. Arla’s unique point system makes it possible for us to reward our owners and thus contribute to their large investments in sustainability. At the same time, we strengthen the farmers’ motivation to implement the initiatives necessary for our cooperative to reach its ambitious climate goals for 2030,” says Peder Tuborgh.

Farmers exceed expectations

In 2022 alone, Arla farmers across seven countries reduced their CO2e emissions from their milk by more than two per cent. Data from Arla’s Climate Check on the farms shows this. Amongst other things this has happened because the farmers have produced and used feed more efficiently, used less fertiliser, improved their manure storage, reduced energy consumption and shifted to more renewable electricity.

When Arla introduced the Sustainability Incentive model, the dairy company expected farmers to achieve an average of 39 points out of a possible 80 in the new point system. However, the first inventory shows that the average farmer has achieved 48 points based on the initiatives registered by the end of June 2023.

The 48 points mean that across seven countries Arla pays out an average of 1.44 eurocent per kilo of milk to its farmer owners through the Sustainability Incentive. On top of this is another 1 eurocent per kilo of milk for submitting the Climate Check data that is required in order to take advantage of the Sustainability Incentive. For an average Arla farm with and annual milk production of 1.6 million kg, the two amounts in total equal close to Eur40,000 a year.

”Our owners are working determinedly to reduce emissions on their farm. There is a great commitment in our cooperative to show our consumers, our industry and society in general that we as Arla farmers are able to produce milk with an increasingly smaller footprint on climate and nature. It is a significant effort for the individual farmer; however, many are well on their way and together we can motivate each other, e.g. through a financial incentive using our new points-based model. I am excited to watch the level going forward, because with this large engagement we will be able to move really far in a short period of time,” said Jan Toft Nørgaard, chairman of the board at Arla Foods.

The monthly incentive will be updated quarterly, and the total annual amount depends on the farmers keeping the level of sustainability initiatives on each farm as well as the total milk volume in Arla.

Data-driven and science-based approach ensures actual difference

The Sustainability Incentive model has been drafted in close cooperation with Arla’s farmer board and by involving Arla’s 8,500 farmer owners. Based upon the measures that could make the largest impact, a system with 19 point-giving levers – such as feed and protein efficiency, manure handling, sustainable soy, renewable electricity and land use – has been developed. The point system is used for rewarding the Arla farmers’ work with sustainability and initially there are 80 points available.

The reward model builds upon the data obtained from Climate Checks since 2019, amongst other things, and reflects Arla’s science-based plan to achieving its reduction goals, which meets the Science Based Targets Initiative’s criteria for ambitious value chain goals.

According to Peder Tuborgh, this is of key importance:”It is a fundamental premise for our incentive model that it is data-driven and science-based. We want to drive activities that make a real impact on climate and environment. Our owners and the outside world demand that.”

Arla has a superior goal of reducing CO2e emission by 30 per cent by 2030 and faster in some countries. Arla strives towards becoming completely climate neutral by 2050.