Domestic net sales increased by 0.5%, and international net sales by about 7%. The work that began in 2018 to improve business profitability advanced as planned and was reflected in the improvement in the milk return.
Valio’s board of directors determines the raw milk price based on the market situation and Valio’s financial standing. Board members are milk producers. In 2019, the average price Valio paid for milk was 39.9 cents per liter (39.2 c/l). After-payments for 2019 amounted to 1 cent per liter. The sustainability bonus to encourage the continuous improvement of animal welfare was raised to two cents per liter in July.
Milk down, plant-based up
Growth in Finland was generated especially in snacks and plant-based products. Valio PROfeel products continued their strong growth, and the new protein puddings launched in February were a success.
The portfolio of plant-based products expanded with Valio Oddlygood Veggie slices and shreds. The Valio Oddlygood Barista oat drink developed in collaboration with coffee professionals did well in Finland and Sweden. In the traditional categories, milks continued to decline in line with the market trend.
Increase in exports of powders generating customer value
Net sales of international operations were €715m ($792m). Net sales growth was moderate in the nearby markets of Sweden, Estonia and Russia, while net sales in China grew by close to 40% compared to the previous year.
Valio said it sees potential in China especially in special ingredients for the food industry, which it calls value-added powders. Profitability improvement in the US advanced as planned.
Valio’s share of Finland’s total food exports is about 25%. A significant share of exports is destined for places beyond the nearby countries. Primary exports to countries around the world are milk powders, cheese and butter. The global market price of butter decreased compared to the high level in 2018, but milk powder prices developed favorably after the depletion of the EU intervention stocks.
Sales of value-added ingredients grew by about 30% in 2019.
“We see international growth potential especially in value-added ingredients. The growth is currently limited by the drying capacity of powders because it takes longer to produce value-added powders than ordinary milk powders. In the years ahead, we will be upgrading the production lines to increase plant capacity,” Valio’s CEO Annikka Hurme said.
Three-year profitability improvement program
In 2018, Valio initiated a three-year program focused on improving competitiveness and profitability. The program advanced as planned, which was visible in the improved milk return. At the beginning of 2019, Valio renewed its organization and management model. The cooperation negotiations targeting head office functions resulted in a reduction of 80 employees.
During the first four months of 2020, Valio signed contracts with milk producer cooperatives on the raw milk volumes that Valio will receive in the upcoming years.
“Contract production makes it possible for us to better predict the milk volume and increase the capacity for value-added ingredients. The better the milk volume and production match domestic and export market demand, the better the chances of future success for both Valio and our owners – the 4,700 Finnish dairy farms,” Hurme said.
Legal proceedings
In July 2019, the District Court of Helsinki gave its ruling in the claim for damages related to milk pricing. Valio was ordered to pay damages arising from 2010-2012 and amounting to €3.5m ($3.88m) for the Maitokolmio cooperative and €4.5m ($5m) for the Maitomaa cooperative, as well as statutory interest and some legal expenses for both.
Climate change
Valio said its climate work continued in 2019. Its goal is to reduce the carbon footprint of milk to zero by 2035. Valio established a ‘Carbon-neutral Milk Chain’ team, and said it worked to find new emissions-reducing solutions in its milk chain.
Measures taken include the training of 240 dairy farm entrepreneurs to become carbon farmers, i.e. to sequester more carbon in their fields, recycled plastics began use in packaging, a carbon footprint calculator was developed, and the company committed to setting scientifically assessed climate targets in line with the Paris Agreement.
Additionally, Valio arranged several different events that focused on ways to decrease greenhouse gas emissions from peatlands drained from wetlands.
“We believe there is a place for sustainably produced Finnish dairy products also in the future. The way we produce milk differs quite a bit from many other countries. The cows primarily eat grass, no soy at all,” Hurme said.
“Towards the end of the chain, the climate impacts are reduced through energy efficiency improvements at plants, optimised transport routes, eco-friendly packaging, and reduced waste in production. We take our climate targets seriously. We want people to be able to enjoy dairy products with a good conscience also in the future.”
Coronavirus
Valio said the coronavirus pandemic that started in China at the beginning of 2020 will impact operations in Finland and abroad in many different ways for at least the first half of the year.
Consumer expectations regarding their own finances and the Finnish economy have weakened compared to last year, and the coronavirus pandemic will further weaken purchasing power. In all Valio’s markets, restaurant, hotel and industrial kitchen operations will be significantly affected in the months ahead. On the other hand, retail demand is growing as people are preparing more meals at home.
“In Finland, Valio also plays an important role as part of security of supply and food security,” Hurme added.
“In all our operations, we aim to serve customers and consumers in the best possible way. We are working in collaboration with co-operatives to support the dairy farm entrepreneurs, and we are doing our best to promote employee wellbeing and coping also during exceptional situations.”
Other uncertainty factors include the impact of climate change on the prerequisites for global milk production and consumer habits, trade policy conflicts, and Britain’s exit from the EU.
Valio said it will continue implementing its strategy in 2020 by developing its strong brands and by introducing new, innovative products that meet the changing needs of people. Internationally, Valio is pursuing growth particularly with value-added powders. Valio’s three-year project to improve cost efficiency and competitiveness, and to improve the milk return, will continue.
Valio's board of directors' report and financial statements will be published on April 17, 2020.