Arla, a well-known manufacturer of premium dairy products, must adapt to changing customer tastes towards sustainability and non-dairy alternatives in the context of the disruptive forces transforming the dairy business. This challenge emphasizes the necessity for Arla to create practical plans to preserve its market share, take care of environmental issues, and keep providing tasty and healthy dairy products to customers all over the world. Arla has developed a Sustainability Incentive approach to address this issue by rewarding and motivating its farmer owners to adopt environmentally and climate-smart activities. Arla uses this framework for decision-making to help it navigate the complex world of sustainability and dairy production while remaining loyal to its long-term goals and ecological responsibility.
To help and incentivize its farmer-owners, Arla has implemented a Sustainability Incentive model to the requirement to decrease the environmental effect of dairy production. The purpose of this model is to provide incentives for climate and environmental sustainability initiatives, in line with Arla's objective to lower its carbon footprint. Arla wants to incentivize its farmer owners to use methods that lower greenhouse gas emissions and protect biodiversity by offering cash prizes for sustainability initiatives.
The following outline will be followed to write this paper. We will apply the DECIDE model (Guo, 2020) for the format of the decision-making process:
1. Define the Problem
1.1 General Overview of Disruption in the Market
Growing consumer interest in plant-based alternatives is causing a revolutionary change in the
dairy industry. In 2020–2027, the global market for plant-based dairy products is projected to expand at a compound annual growth rate (CAGR) of 11.2%, according to research and market analysis. Numerous issues, such as consumer worries about ethics, the environment, and health, are driving this increase.
1.2 Analysis of Revenue of Arla
From 2010 to 2023, Arla Foods' global net sales expanded overall. In 2023, the corporation brought in almost 13.67 billion euros in sales. As observed by its financial records, Arla's revenue has been impacted by this market instability. Arla noted in its 2023 annual report a decline in sales of conventional dairy products as compared to 2022, which it partially attributed to the growing trend for plant-based substitutes. To offset revenue losses, the research also recommended increasing investments in product portfolio diversification. The company has raised its revenue as compared to past as shown below.
Figure. Revenue of Arla (Statista, 2024).
1.3 Analysis of Arla’s Market
Approximately 8,500 dairy farmers own a cooperative that operates Arla Foods, the fourth-largest dairy enterprise in the world. Arla competes in a market where trends and shifting customer preferences are prevalent. According to an examination of the dairy market by Euromonitor International, major dairy firms such as Arla are facing challenges from an increasing demand for non-dairy products. Arla has been investigating methods to broaden its customer base and diversify its products to adjust to this changing market.
1.4 Analysis of customer preferences
Health and environmental issues are influencing consumer tastes, which are moving towards plant- based substitutes. In the UK, 49% of consumers had cut back on dairy consumption for health reasons, while 28% said that choosing plant-based products was influenced by their concern about the environment. A Mintel poll revealed these findings. Arla must make sure that its product offers reflect the changing desires of its customers.
1.5 Analysis of Environmental Concerns
Consumers are becoming more concerned about environmental sustainability, which affects their decisions to buy in a variety of sectors, including the food and beverage industry. The effects of dairy production on the environment, including greenhouse gas emissions and water use, are highlighted in research published in the Journal (Mbuthia, Mayer and Reinsch, 2021). Arla is looking at eco-friendly procedures and ways to lessen its environmental impact to address these worries.
2. Establish the Criteria
2.1 Sustainability Development Goals
Arla has established sustainable development objectives that follow the Sustainable Development Goals (SDGs) of the United Nations to direct its endeavors towards social responsibility (Pelton, 2020). These objectives include helping local communities, encouraging ethical sourcing, and lowering carbon emissions. Based on a selection of eight key UN Sustainability Goals, Arla highlighted their commitments to a healthier world and stronger people. Arla has set high standards for itself to fulfill these commitments: 100% recyclable plastic, 100% green power in the EU and UK by 2025, and carbon net zero by 2050. The sustainability team of Arla has established and distributed these objectives in coordination with sustainability specialists who are integrated into several business divisions (School, n.d.).
2.2 Farmer Compensation
Maintaining a sustainable supply chain and guaranteeing the well-being of agricultural
communities depend on paying dairy farmers fairly. To assist dairy producers, Arla has put in place several programs, such as training courses, resource access, and equitable pricing arrangements.
2.3 Business Viability and Economics
Arla needs to achieve a balance between economic sustainability and environmental and social responsibility to maintain corporate viability amid market disruptions. Long-term growth and profitability have been demonstrated in the company's financial performance and strategic investments (Nidercorn, 2017).
3. Consider all Alternatives.
3.1 Diversification of Portfolio
Along with a variety of plant-based substitutes, Arla has expanded the range of items it offers beyond just dairy products. By using this analytical strategy, the corporation may capitalize on its experience in dairy production and take its share of the expanding non-dairy market (Beinisch, 2022).
3.2 Partnerships and Collaborations of Arla
Arla can access new markets and technology by working with plant-based food businesses and investing in startups that specialize in non-dairy goods (Azuayi, 2016). These collaborations help the business achieve its growth goals while offering chances for innovation and market expansion.
3.3 Product Development
Arla has to be committed to research and development investments to improve its dairy products and create innovative substitutes. The capability of Arla to make dairy products allows it to provide distinctive items that appeal to consumers who are health-conscious and looking for ethically and sustainably produced items. The branding of the product, 100% Swedish milk from Swedish Arla farms, the tagline "building strong legs/bones," and the activities of the kids are all connected by the positioning and design of the cow about each other. The concepts of well-being, recreation, and the natural world were originally linked to nationalism, industrialization, and modernization. A significant participant in the dairy sector, Arla Foods is a worldwide cooperative that seeks to increase the added value of its goods for the benefit of its members. For instance, in response to customer demand, it launched the Meadow Milk program, or Stichting in 2013. Participating farmers in this contract farming program are required to give their dairy cows at least six hours of grazing every day for a minimum of 120 days (Nidercorn, 2017).
3.4 Innovation at Arla
Arla has to develop new and innovative ways to produce dairy products to stay ahead of the competition. Arla can differentiate itself from competitors and create new goods that satisfy changing market demands by keeping up with rising trends and consumer preferences (Golovina et al., 2021). Dairy products produced in labs have demonstrated a strong potential to rival animal dairy in terms of flavor and nutritional content. In the future, more consumers may move to alternative dairy products as these technologies advance and the cost of producing lab-grown dairy could decrease, due to the factors related to sustainability, affordability, or health.
3.5 Sustainability Incentive Model at Arla
To account for each farmer's carbon impact on milk production, Arla has created a sustainability incentive model. The incentive scheme will reward the farmers leading the cooperative on sustainable dairy production by assigning points across a range of sustainability criteria that are weighed for their environmental effects. Simultaneously, Arla HQ provides farmers with technical support and advice, providing resources and best practices to enable farmers to make knowledgeable, empowered decisions about which categories to invest in for their operations.
By integrating a sustainability incentive scheme across its whole supply chain, Arla may decrease its impact on the environment and improve its standing as a socially conscious company. Arla can encourage good change and contribute to a more sustainable future by rewarding partners and suppliers for their sustainable practices.
A table of contents will be added later in the final file.
References
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Beinisch, N. (2022) ‘Value Chain and Regulatory Governance: The Case of Arla Foods in Nigeria’, in Greening of Industry Networks Studies. Springer Science and Business Media B.V., pp. 303– 322. Available at: https://doi.org/10.1007/978-3-030-78791-2_14.
Golovina, S.G. et al. (2021) ‘The impact of human capital on the success of an agricultural cooperative (Example of “arla foods”)’, Siberian Journal of Life Sciences and Agriculture, 13(2). Available at: https://doi.org/10.12731/2658-6649-2021-13-2-262-283.
Guo, K.L. (2020) ‘DECIDE: A decision-making model for more effective decision making by health care managers’, Health Care Manager, 39(3). Available at: https://doi.org/10.1097/HCM.0000000000000299.
Mbuthia, J.M., Mayer, M. and Reinsch, N. (2021) ‘Modeling heat stress effects on dairy cattle milk production in a tropical environment using test-day records and random regression models’, Animal, 15(8). Available at: https://doi.org/10.1016/j.animal.2021.100222.
Nidercorn, M. (2017) ‘Meadow Milk: the relevance and impact of a contract farming program undertaken by the Arla Foods cooperative’, FOURRAGES, (230), pp. 123–126.
Pelton, J.N. (2020) ‘UN Sustainable Development Goals for 2030’, in Handbook of Small Satellites: Technology, Design, Manufacture, Applications, Economics and Regulation: With 476 Figures and 92 Tables. Available at: https://doi.org/10.1007/978-3-030-36308-6_84.
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