Last week’s announcement Dairy Crest had agreed to sell its struggling liquid business to Muller UK and Ireland Group means 700 farmers will leave the processor should approval be granted by competition regulators.
This will leave Dairy Crest with about 400 farmers, predominantly in the South West, supplying milk for its lucrative cheese and spreads business which consists of brands such as Cathedral City, Davidstow, Clover and Country Life butter.
The deal means Muller UK and Ireland Group will add to its 1,200-or-so existing farmers and swell its milk capacity to about three billion litres a year, drawing closer with Arla’s 3.3bn litres.
Ronald Kers, chief executive of Muller UK and Ireland Group, said: “We are concerned the dynamics of the UK fresh milk market are unsustainable for dairy processors in the mid- to long-term and this acquisition will allow us to reduce our costs, increase our efficiencies and invest in the future.”
In an exclusive interview with Farmers Guardian earlier this year, Mr Kers said he wanted Muller to be the ‘number one UK processor’. At the time, he said there were huge opportunities to displace imports of foreign dairy products coming to the UK, something bosses reiterated in wake of this deal.
Dairy Crest’s dairies division had a turnover of £955m in the 12 months to March this year, but a profit of just £600,000 once property sales were excluded, showing just how tight liquid milk margins were. In contrast, its cheese and spreads business made £56.1m on a £442m turnover.
But Muller bosses were confident the creation of ‘economies of scale’ meant it would be big enough to achieve margins on liquid milk going forward.
Mark Allen, chief executive of Dairy Crest, which saw its share price leap in the wake of the announcement, said it was good for the firm’s farmers.
He said: “The disposal will allow Dairy Crest to focus on continuing to grow our successful and innovative branded cheese and spreads operations. We will also deliver further added value sales through our whey investment.
“We are confident this focus will deliver further medium-term profit growth for our shareholders.”
All current Dairy Crest contracts, including formula contracts, will be carried over to Muller and there will no changes before the deal is officially completed; a process some commentators claim could take up to a year.
Dr Judith Bryans, chief executive of Dairy UK, and NFU president Meurig Raymond both welcomed the deal, claiming Muller had a track record of investment in UK dairying.
The £80m deal, conditional on regulatory and shareholder approval, will see Muller buy:
Dairy Crest Direct (DCD), the farmer representative group, faces an uncertain future in wake of the sale.
While it will be retained for Dairy Crest farmers supplying Davidstow, it is unclear whether it will continue in some form for those transferring to Muller, which has its own farmer representative group.
Graeme Jack, Muller UK and Ireland Group communication director, said both firms had a history of democratically elected dairy farmer representatives, and discussions about what form this would take in the future would occur after the deal was finalised.
DCD company secretary Michael Masters said some farmers were disappointed there would be no purely British-owned liquid milk processor among the UK big three, but they were pragmatic about the sale.
He added: “Most farmers are looking at the long-term perspective and believe this is a positive deal.”
Muller has also bought Milk and More, Dairy Crest’s doorstep milk delivery business, as part of the deal. A Muller spokesman said it was a ‘key part of the business’ going forward.