For the first time, Arla Foods has implemented a new monthly incentive program to financially reward its farmer owners for their sustainability efforts and climate activities on their farms. This ground-breaking initiative utilizes a data-driven and science-based points system to quantify and recognize the farmers’ achievements. The results have exceeded expectations, with farmers implementing more activities than originally anticipated. As a result, Arla is set to pay out Eur2.2 billion until the end of 2030 to support farmers’ sustainability activities. However, the cooperative has set aside an even greater amount, as it foresees its farmer owners raising the bar significantly higher.
One key benefit of this program is that Arla farmers who take the most action on climate will now receive a higher price for their milk. By incentivizing sustainability, Arla aims to motivate its farmers to implement climate and environment-enhancing initiatives, ensuring a faster transition to more sustainable dairy farming practices. Consequently, consumers can be assured that a portion of the price they pay for Arla’s products contributes to rewarding and incentivizing a commitment to sustainability.
Arla has allocated up to 500 million EUR annually to reward and motivate farmers, with 300 million currently activated. The size of the incentive varies based on individual farmers’ efforts, measured in points. Considering the current points score, Arla will pay at least Eur2.2 billion for sustainability activities on farms until the end of 2030. However, this amount is expected to increase as farmers, fueled by the incentive, continue making climate improvements.
Peder Tuborgh, Arla’s CEO, expressed his anticipation for this program, stating, “The Sustainability Incentive is a significant step towards connecting the economy with climate and nature improvements on farms. Arla’s unique point system enables us to reward our owners and contribute to their substantial investments in sustainability. Simultaneously, we bolster farmers’ motivation to implement the necessary initiatives for our cooperative to achieve its ambitious climate goals for 2030.”
Farmers Surpass Expectations
Last year, Arla farmers across seven countries achieved a reduction of more than two percent in their CO2e emissions from milk production. This positive outcome is evident from data obtained through Arla’s Climate Check program. The reduction can be attributed to various factors, including improved feed and protein efficiency, reduced fertilizer usage, enhanced manure storage practices, decreased energy consumption, and a shift towards renewable electricity.
Initially, Arla expected farmers participating in the Sustainability Incentive program to achieve an average of 39 points out of a possible 80 in the new point system. However, the initial assessment revealed that the average farmer has achieved 48 points as of June 2023.
As a result, Arla pays an average of 1.44 euro cents per kilo of milk to its farmer owners through the Sustainability Incentive across the seven countries. Additionally, farmers receive an extra 1 euro cent per kilo of milk for submitting Climate Check data, which is a prerequisite for participating in the Sustainability Incentive. For an average Arla farm with an annual milk production of 1.6 million kg, the combined incentives amount to nearly Eur40,000 per year.
Jan Toft Nørgaard, the Chairman of the Board at Arla Foods, emphasized the dedication of Arla’s owners in reducing emissions and their commitment to producing milk with a smaller environmental impact. He stated, “Together, we can motivate each other through financial incentives, such as our new points-based model. With this high level of engagement, we can make significant strides in a short period.”
The monthly incentive will be updated quarterly, and the total annual amount will depend on farmers maintaining the sustainability initiatives on their farms, as well as the overall milk volume in the Arla cooperative.
Data-Driven and Science-Based Approach
The Sustainability Incentive model was developed in close collaboration with Arla’s farmer board and involved input from the cooperative’s 8,500 farmer owners. The system consists of 19 point-giving levers, such as feed and protein efficiency, manure handling, sustainable soy usage, renewable electricity, and land management. These points acknowledge and reward Arla farmers’ commitment to sustainability, with an initial allocation of 80 points.
The reward model utilizes data collected from Climate Checks since 2019, among other sources, and aligns with Arla’s science-based plan to achieve its reduction goals. This plan meets the criteria established by the Science Based Targets Initiative for ambitious value chain goals.
Peder Tuborgh emphasized the importance of a data-driven and science-based approach, stating, “It is fundamental for our incentive model to be grounded in data and science. We aim to drive activities that make a tangible impact on climate and the environment. Both our owners and the wider world demand it.”
Arla has set a superior goal of reducing CO2e emissions by 30 percent by 2030, with some countries aiming for even faster reductions. Ultimately, Arla’s aspiration is to achieve complete climate neutrality by 2050.
