Danish dairy heavyweight Arla Foods has warned that a milk production shortage and its impact on commodity prices could lead to retail prices increasing this year.

Peder Tuborgh, the Castello cheese and Lurpak butter brands owner’s CEO, said “supply and demand is slightly out of balance globally”.

Speaking to reporters after Arla reported its first-half results, Tuborgh emphasised he is restricted in what he could say on pricing but did make the general point that demand is growing globally while milk stocks have reduced.

“We have seen commodity prices rise, not least for cream and fat,” he said.

“We have not seen the move into the retail market but we could see a slight uplift in terms of price.”

Asked to expand on why this situation has developed, Tuborgh said: “The wet weather in northern Europe has suppressed production but also the uncertainty in policymaking is something farmers don’t like.”

He said this uncertainty around policymaking includes Denmark’s plan to introduce the world’s first tax on carbon emissions from livestock farming.

“There is a bit of ‘wait and see’ at the moment amongst farmers and I understand that,” he said.

Arla reported revenues of €6.6bn ($7.35bn) for the first half of 2024, down from €7.1bn in the first six months of 2023, a figure the cooperative said was driven by prices.

Tuborgh said: “We are satisfied that the momentum created by our farmer-owners and employees in 2023 has continued into 2024 and today Arla is able to announce a robust half-year result with a competitive milk price that paves the way for enhanced sustainability efforts going forward.”

Arla said its 'strategic brands' reported volume-driven revenue growth of 4.1% in the first half of 2024 compared to a decrease of 6% in the first half of 2023. The growth was spearheaded by the Lurpak, Puck and Arla brands which respectively grew volumes by 7.9%, 4.4% and 3.8% in the first half of 2024.

EBIT jumped 65% to €266m. Arla reported a profit for the period of €173m, 56% higher than in the first half of 2023.

Its guidance for the full year is for revenues of €13.4bn to €13.9bn, against previous guidance of €13.2bn to €13.7bn.