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Muller’s acquisition of Dairy Crest’s liquid business was generally heralded as a step in the right direction on two scores.
Firstly, Dairy Crest had struggled for years to make a profit from its beleaguered business and something had to happen to restore margins.
And secondly, the incidental spin-off from contracting three processors into two was that it could help rationalise discussions when it came to the regular retailer negotiating rounds. So all seemed hunky dory.
Until this week, when Sainsbury’s suddenly entered the fray. They were having none of it. Its decision to award its latest milk tender to not one, not two, not three, but four processors wasn’t what Muller may have had in mind.
Sainsbury’s message was crystal clear: “We’re in charge here, not you.” It is not going to let one or two processors dominate and has ensured by its actions there will be plenty of competition for the big guns at Arla and Muller.
Although there have been tenders at other retailers lately, it is impossible to know volumes or prices as figures are kept top secret. Whatever they were, it is undeniably a disastrous time for renegotiating milk prices with retailers as with all this milk swashing around it is pretty unlikely they will have agreed higher prices.
Both prices and processing fees will have been under severe pressure, and any reduction is likely to be ultimately picked up by the nonaligned suppliers who have no predetermined supermarket price.
Muller may be making a noble attempt to rationalise the processing sector, but it has been made abundantly clear it is going to be no stroll in the park!