The announcement comes as dairy processors across the globe face rapid increases in the prices for milk used in their products as key suppliers continue to struggle to meet demand.
As a result, Arla's supervisory board said it was to phase emmental out of its product portfolio for production of higher-growth dairy goods like mozzarella and milk powder to offset increasing raw material costs.
The reduced production will result in the closure of the group's Aars dairy site in Denmark, which employs 70 staff.
The company suggested that it had been hit particularly hard by drought conditions in Australia, which had compounded low stocks in Europe and the US, that were already struggling to meet rising global demand for milk powder.
Arla's production manager, Niels Lange Jørgensen, said that with the increase to prices expected to continue within the next few years, it had decided to restructure its production operations accordingly.
"Having analysed the milk powder market, we believe that prices will remain high for at least 1-2 years," he stated.
"At the same time, we believe that mozzarella has significant growth potential and therefore we'll need the milk for mozzarella production at Rødkærsbro Dairy where production capacity is being expanded from 38,000 to 50,000 tonnes."
It is not just Arla though who are feeling the pinch, across the Atlantic, US dairy groups are also having to tighten their belts.
Dean Foods, a major player within North American dairy production, announced today that it would be lowering its 2007 profit estimate by about 4 per cent as result of the declining milk stocks.
Company chairman Gregg Engles, told investors at a conference in Paris, that the industry as a whole was experiencing the detrimental affects relating to changes within the supply chain.
"Conventional milk prices have risen rapidly and forecasts for the back half of the year have increased significantly as foreign and domestic market forces have combined to put significant pressure on the US dairy industry," he said.
Though players like Dean Foods have yet to cut out entire cheese varieties as a result of the declines, analysts are expecting further upheavals to dairy production.
Just last week, the United States Department of Agriculture (USDA) issued a new report looking at the effects of both CAP reform and dwindling supply on European dairy production.
Though the bloc's milk supply was beginning to bounce back from difficult 2006, increased milk production was still insufficient to bridge demand.
With any increases by almost entirely used within cheese croduction it added that the supply of butter, whole milk powder and non-fat dry milk could continue to suffer.