European dairy co-operative Arla has introduced a Sustainability Incentive model to encourage its 8,900 farmer-owners to achieve emission reduction targets.
As part of the initiative, farmers can collect points based on their activities on the model’s 19 different levers, including the use of sustainable feed, the use of renewable electricity, knowledge building and fertiliser and land use.
Each point that the farmer achieves, depending on their level of environmental sustainability activities, will trigger 0.03 eurocent per kilo of milk. The levers with bigger improvement potential for climate and nature will lead to the most points and the biggest financial incentive. Eighty points will be available from the start in 2023, with a further 20 points expected to be added within a few years.
“The Sustainability Incentive model is a historical milestone in our transition to more sustainable dairy,” said Arla’s chair, 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 receive will not only depend on fat, protein and quality, it will also depend on their activities on sustainability.
“The support from our members, even in a time of great uncertainty, is a testament to our commitment to being at the forefront of progressive dairy farming and setting the standard for how to push our whole sector forward.”
In the first full year of the incentive, at least €270m is expected to be distributed through the monthly milk price based on what the farmers are doing on the 19 levers.
Arla CEO Peder Tuborgh says that although the co-operative “has some of the most climate-efficient farmers in the world,” the Sustainability Incentive will be “an effective tool for driving further improvements”.
He added: “[Our members] 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.”
The Sustainability Incentive model rewards both current and future activities and includes levers relevant for the different farm systems across the cooperative. Initially, there will be a strong focus on climate activities, but the organisation has confirmed that as the sustainability agenda and science matures, more options will be included in the model. The first incentive payment will be paid out as part of the monthly milk price in August 2023, based on milk delivered in July.
The co-op’s board and members have been involved in the development in the model, with the first proposal being presented to farmers in August; 95% of Arla’s farmers have already registered their data in the 2022 Climate Check, so their points on some of the levers in the Sustainability Incentive model will automatically be calculated and rewarded.
“All our members’ ideas and feedback have been registered and taken into account, some of which are reflected in the model,” added Nørgaard. “I am proud that across our co-operative, despite inflation, labour shortage and supply challenges, members have supported that it’s time to financially incentivise sustainability improvements.”
The move comes alongside Arla’s announcement it has entered into a 10-year power purchase agreement with Eurowind Energy, which will ensure the co-op reaches its target of using 100% green electricity in Denmark. The co-op has a target of using 100% green electricity across Europe by the end of 2025, and be carbon net zero by 2050.
