IN Brief:
- Arla is investing €35 million in German skyr production and €28.3 million in Swedish cottage cheese capacity.
- Skyr volumes across Arla’s European markets have risen more than 33% over three years, while cottage cheese volumes increased 25%.
- New capacity at Upahl and Falkenberg is scheduled to enter service progressively through 2028.
Arla Foods is investing €63.3 million in additional skyr and cottage cheese capacity in Germany and Sweden, committing €35 million to its Upahl dairy and €28.3 million to Falkenberg as demand for protein rich dairy continues to outgrow available production in several European markets. Commercial production from the Upahl expansion is expected to begin in the second half of 2028, while the Falkenberg programme will be completed progressively through the same year.
Across Arla’s European markets, skyr volumes have risen by more than 33% over the past three years and cottage cheese volumes by 25%, with the latter category growing 13% in Sweden, 37% in Denmark and the UK, and 38% in the Netherlands during the latest year. Those figures sit behind a capacity programme that is being spread across established dairies rather than concentrated in a single new site, allowing Arla to build on existing production, cold chain, quality, and distribution infrastructure.
Upahl forms part of a wider skyr network in which Arla has already invested €51 million since 2023 across Denmark, Germany, and Sweden, so the new German project extends a manufacturing programme already under way rather than starting from a standing position. Falkenberg is following a similar path in cottage cheese, where Arla has invested €34 million in Swedish production since 2025 and has also broadened its international presence through the acquisition of Australian producer Brancourts earlier this year.
Peder Tuborgh, chief executive of Arla Foods, said: “Consumer preferences continue to evolve, and we see growing demand for products with high-protein combined with convenience and great taste.” The investment is consistent with Arla’s first-half performance, when Arla Skyr recorded 39.6% volume driven revenue growth at group level and Arla Protein increased by 34.4%, giving the cooperative a clear reason to direct capital towards categories growing faster than its wider portfolio.
Fermented dairy capacity is constrained by more than vessel volume, however, because higher throughput has to be supported by fermentation control, filling equipment, cleaning cycles, utilities, chilled storage, labour, and downstream packing. Where one of those functions remains fixed, nominal capacity can rise without a corresponding increase in saleable output, which makes the configuration of the Upahl and Falkenberg projects at least as important as the headline investment value.
Expanding Upahl around an established dairy also reduces some of the execution risk associated with a greenfield site, since the plant already operates within Arla’s fresh dairy network and can draw on existing technical teams, supply arrangements, and quality systems. The company has not disclosed the detailed equipment package, but a commercial start date in the second half of 2028 points to a substantial multi-year programme involving more than a short filling-line modification.
Falkenberg combines additional cottage cheese capacity with site modernisation, a distinction that carries operational weight because older utilities, cleaning systems, transfer routes, or packing equipment can limit the benefit of adding process capacity upstream. Modernising the site alongside the expansion gives Arla the opportunity to improve reliability and plant balance while increasing output, rather than leaving the new investment dependent on legacy bottlenecks elsewhere in the production chain.
European milk supply has remained sufficient to put pressure on pricing in parts of the market, while protein positioned products have continued to deliver stronger volume growth, creating an incentive to move more milk solids through categories that can sustain higher value rather than relying solely on commodity outlets. Capacity at Upahl and Falkenberg gives Arla more room to make that allocation through branded cultured products rather than leaving growth constrained by the existing manufacturing network.
Higher value processing only benefits Arla’s farmer owners if the expanded dairies can convert milk into consistent finished product at competitive cost, putting greater emphasis on energy use, yield, cleaning losses, line utilisation, labour efficiency, and product recovery. The category growth behind the investment therefore has to be matched by disciplined plant performance once the new assets are fully operational.
With both projects running towards 2028, Arla is committing capital well ahead of the sales it expects the new assets to support, which exposes the programme to any change in protein rich dairy demand before full production begins. The Brancourts acquisition extends the same category strategy into another market, while the German and Swedish investments deepen capacity in Europe and give the cooperative more options if growth rates begin to diverge between countries.
By 2028, Upahl and Falkenberg will be carrying a larger share of that forecast. The commercial test will be whether Arla can bring the new capacity on stream without sacrificing plant utilisation, product consistency, or cost control as volumes increase, because the category growth that justified the investment will only create lasting value if the dairies can convert it into efficient, repeatable production.
