Arla Foods is investing up to €500m a year in a new incentive scheme that will reward its 8,000 European dairy farmers for meeting a raft of environmental sustainability criteria.
From next year, the milk price each individual Arla farmer will receive from the dairy co-op “will depend on his or her activities related to environmental sustainability”, it said.
The move is part of Arla’s bid to make further progress against its Scope 3 target of reducing emissions by 30% per tonne of standardised raw milk and whey by 2030 (against a 2015 base year).
The supplier’s new point-based Sustainability Incentive model is based on 19 different ‘levers’, which cover requirements ranging from manure delivery to biogas to biodiversity improvements, feed and fertiliser efficiency, renewable electricity usage and deforestation-free soy feed sourcing.
Some 80 points would be available from the start in 2023 and a further 20 points for new levers were expected to be built into the model within a few years – leading to a total of 100 points.
Arla said farmers would receive 0.03 eurocents per kg of milk for each point achieved, with the potential of earning up to three eurocents per kg towards their farmgate milk price.
Together with the one eurocent per kg farmers received for taking part in Arla’s Climate Check initiative – which collates on-farm climate data and underpins the new incentive scheme – up to four eurocents per kg (or about 7% of its total farmgate price) will be based on a farmer’s efforts to cut their impact on the environment.
In the first full year of the model, at least €270m was expected to be distributed through the monthly milk price based on how farmers were performing against the 19 levers, Arla said.
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And while the scheme was entirely voluntary, Arla expected strong take-up, with 93% of its farmers having already registered their data in the 2022 Climate Check.
The first incentive payment will be paid out as part of the monthly milk price in August 2023, based on milk delivered in July.
It will be calculated based on the data available from the 2022 Climate Checks and any additional documentation that the farmer has uploaded, such as a purchase agreement for renewable electricity or deforestation-free soy.
The incentive scheme was described as “a historic milestone in Arla’s transition to more sustainable dairy”, by its chairman Jan Toft Nørgaard.
“We are introducing an advanced and ambitious sustainability incentive, which is a fundamental change to our milk price model. Going forward, the milk price Arla farmers will receive for their milk will not only depend on fat, protein and quality, it will also depend on their activities on sustainability.”
It was also an “effective tool for driving further improvements”, added Arla CEO Peder Tuborgh.
“Arla has some of the most climate-efficient farmers in the world. However, they also recognise that they need to accelerate their efforts to be at the forefront of environmentally sustainable dairy. With this historical step, we will stand stronger in the market and send a clear message to our customers and consumers that the necessary change comes at a price for our owners and that a fair amount of the money you pay for Arla products is directed to the farmers who take the most action.”
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