A First Milk buy-in to Robert Wiseman Dairies does not signal an end to the upheaval in the dairy industry, says Vic Robertson
It all points to even more integration within the dairy sector in the future.
Just when dairy industry chiefs may have thought they were about to see an end to the turmoil that has been sweeping the sector over the last few weeks, a new round kicked off this week suggesting that there is a long way to go yet.
In tune with the increasing consolidation across the sector, the Scottish-based Robert Wiseman Dairies group confirmed it was in discussions with First Milk, one of the big three dairy farm co-ops, which could lead to further integration.
Under the proposals, First Milk would make an offer for 15% of Wiseman shares at 240p each, a premium of 10p to the closing share price on October 1. This would still leave the Wiseman brothers, Robert and Alan, with a significant share of the £170m group.
Talks have been in progress for some time; the two groups have been strategic partners for the past decade. And Wiseman said the deal would offer a three-point advantage: provide a point of market difference; help ensure supplies in the post-CAP reform marketplace; and enable a move to greater efficiencies, such as transport rationalisation.
For First Milk, the key issue is getting more involved in the processing sector; something its 4,000 farmer members see as a move towards achieving greater price stability. That has been the rationale driving much of the recent consolidation in the sector.
First Milk’s strategy is mirrored by Dairy Farmers of Britain’s recent purchase of ACC in a £75m deal that made it the country’s third largest milk processor. At the time, DFB chairman Rob Knight said: “This is our first major deal - and definitely not our last.”
The argument is clear: shorten the supply chain and farmers will have a better chance of protecting margins and securing a route to market.
But there are also those who warn that as the co-ops fall over themselves in a dash for stainless steel, the reverse may happen: the continuing rationalisation may be an opportunity for supermarkets to bring in further price cuts.
And Scottish dairy market analyst Donald McQueen has his doubts about First Milk’s proposed £30m buy-in to Wiseman.
“It represents a lot of premium to get into the processing side,” he says. “Why should a farmer co-op spend money in this speculative way when farmers can do it for themselves in the City?”
Yet the consolidation bandwagon continues to roll.
There are now repeated industry rumours about possible bids for the commodities arm of Dairy Crest, which was one of the biggest losers in the recent shake-out of supermarket supply contracts for liquid milk. You can see why there is so much speculation. Asda has rationalised down to one milk supplier and Sainsbury and Tesco have both gone down to two. That leaves the Morrisons/Safeway group as the only major grocery retailer still supplied by Arla, Dairy Crest and Wiseman.
That message came through loud and clear in the first working meeting of Dairy UK, the co-ordinating group of primary producers and processors, in London this week. This new industry think tank and executive body believes there will have to be further shake-ups to the industry as it looks for improved market opportunities and a fairer share-out of margins.
Reports commissioned by the government and the industry have repeatedly revealed shortcomings in the supply chain and a lack of transparency. The potential removal of some of the complexity does offer hope for improvement.
But Richard King, a partner with Andersons, the farm consultants, questions whether all these changes will result in any further trickle down to dairy farmers. “It all depends on what happens in the marketplace once the new CAP regime comes in,” he warns.
It all points to even more integration within the dairy sector in the future.
Just when dairy industry chiefs may have thought they were about to see an end to the turmoil that has been sweeping the sector over the last few weeks, a new round kicked off this week suggesting that there is a long way to go yet.
In tune with the increasing consolidation across the sector, the Scottish-based Robert Wiseman Dairies group confirmed it was in discussions with First Milk, one of the big three dairy farm co-ops, which could lead to further integration.
Under the proposals, First Milk would make an offer for 15% of Wiseman shares at 240p each, a premium of 10p to the closing share price on October 1. This would still leave the Wiseman brothers, Robert and Alan, with a significant share of the £170m group.
Talks have been in progress for some time; the two groups have been strategic partners for the past decade. And Wiseman said the deal would offer a three-point advantage: provide a point of market difference; help ensure supplies in the post-CAP reform marketplace; and enable a move to greater efficiencies, such as transport rationalisation.
For First Milk, the key issue is getting more involved in the processing sector; something its 4,000 farmer members see as a move towards achieving greater price stability. That has been the rationale driving much of the recent consolidation in the sector.
First Milk’s strategy is mirrored by Dairy Farmers of Britain’s recent purchase of ACC in a £75m deal that made it the country’s third largest milk processor. At the time, DFB chairman Rob Knight said: “This is our first major deal - and definitely not our last.”
The argument is clear: shorten the supply chain and farmers will have a better chance of protecting margins and securing a route to market.
But there are also those who warn that as the co-ops fall over themselves in a dash for stainless steel, the reverse may happen: the continuing rationalisation may be an opportunity for supermarkets to bring in further price cuts.
And Scottish dairy market analyst Donald McQueen has his doubts about First Milk’s proposed £30m buy-in to Wiseman.
“It represents a lot of premium to get into the processing side,” he says. “Why should a farmer co-op spend money in this speculative way when farmers can do it for themselves in the City?”
Yet the consolidation bandwagon continues to roll.
There are now repeated industry rumours about possible bids for the commodities arm of Dairy Crest, which was one of the biggest losers in the recent shake-out of supermarket supply contracts for liquid milk. You can see why there is so much speculation. Asda has rationalised down to one milk supplier and Sainsbury and Tesco have both gone down to two. That leaves the Morrisons/Safeway group as the only major grocery retailer still supplied by Arla, Dairy Crest and Wiseman.
That message came through loud and clear in the first working meeting of Dairy UK, the co-ordinating group of primary producers and processors, in London this week. This new industry think tank and executive body believes there will have to be further shake-ups to the industry as it looks for improved market opportunities and a fairer share-out of margins.
Reports commissioned by the government and the industry have repeatedly revealed shortcomings in the supply chain and a lack of transparency. The potential removal of some of the complexity does offer hope for improvement.
But Richard King, a partner with Andersons, the farm consultants, questions whether all these changes will result in any further trickle down to dairy farmers. “It all depends on what happens in the marketplace once the new CAP regime comes in,” he warns.
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