FDBusiness.com

European dairy groups dominated the business news during the past week. Fresh from its acquisition of North German dairy co-operative Hansa-Milch, Arla Foods entered merger talks with fellow Scandinavian farmers co-operative Milko, which is one of the biggest dairy companies in Sweden. Milko has been struggling for some time and faces future liquidity issues.

Peder Tuborgh, chief executive of Arla Foods.

A merger with Arla Foods would provide Milko’s members with greater security and a better milk price as a consequence of being part of one of the world’s largest dairy groups. It would also bolster dairy farming and milk production in Sweden, which are in decline with the number of dairy cows falling by 50% since 1985.

Arla Foods recently allied with DMK, its German counterpart, to established a 50/50 joint venture business, ArNoCo, to invest Eur44 million to process whey for the global food manufacturing industry. With sales of about Eur4 billion and 5,500 employees, DMK was created in May following the merger of Nordmilch and Humana and to form Germany’s biggest dairy company and the sixth largest in Europe.

Lurpak is one of Arla Foods’ three global brands.

Of course, Arla Foods is the result of the merger of two dairy co-operatives – Arla of Sweden and MD Foods of Denmark – in 2000. Sweden and Germany are two of Arla Foods’ six core markets. The other four are the UK, Denmark, Finland and the Netherlands.

UK Developments

In the UK, Arla Foods has been developing closer links with the two main British dairy co-operatives – Milk Link and First Milk – by entering a joint venture with them at Westbury Dairies. Westbury Dairies is the UK’s most modern skimmed milk powder and bulk butter production facility and plays an important role in providing the key balancing capacity necessary for the British dairy industry to meet its annual peaks in production, and in maintaining a more stable market for farmers’ milk.

Arla Foods is planning to manufacture retail packet butter at Westbury Dairies, from August 2011. However, all is not plain sailing for Arla Foods in the UK. Its proposed £150 million new dairy at Aylesbury in the south of England is meeting increasing opposition from local people in the area.

Strong Performance by Milk Link

Milk Link announced its full year results during the week. Despite very challenging economic and trading conditions, Milk Link performed strongly, increasing both sales and profits, and the proportion of milk it processed. Milk Link processed 58% of the 2.5 billion litres of milk it handled last year through its own production facilities – up from 54% in the preceding year – as it continues to seek to deliver improved returns to its members.

Carl Ravenhall, formerly the managing director of Adam’s Foods – the Irish Dairy Board’s UK operation, is due to take up a senior executive position with Milk Link.

Milk Link is benefiting from its drive for greater efficiencies and productivity across its operations. It has also been active on the M&A front. Milk Link recently strengthened its position as a leading producer of British cheeses by acquiring the Cornish Country Larder soft cheese business for a total consideration of £7.1 million. The dairy co-op has also formed a strategic partnership with Volac to jointly undertake a joint £12 million investment to create a state of the art, added value whey processing operation. The new facility will be the most advanced of its type in the UK. The move is part of Milk Link’s strategy to increase the proportion of its value added business, so reducing exposure to the vagaries of the commodities markets.

Fellow dairy co-op First Milk has also just consolidated its presence in the UK and international cheese markets by purchasing Kingdom Cheese and Kingdom Dairies, both based in Scotland.

Swiss dairy group Emmi is continuing its international expansion.

Restructuring

Later in its current financial year, Milk Link intends to restructure into two business units: Milk Link – Cheese and Milk Link – Milk. The move is intended to allow Milk Link to place greater focus on growing its core businesses while at the same time moving forward with the next stage of its development strategy. It has also strengthened its management team by recruiting Carl Ravenhall, formerly the managing director of Adam’s Foods – the Irish Dairy Board’s UK operation, who is due to take up a senior executive position with Milk Link by late summer.

Emmi Expands International Business

In the past week, Swiss dairy group Emmi continued its international expansion with the acquisition of A-27, an Italian premium desserts producer which owns the Bonta Divina brand, for an undisclosed sum. The acquisition allows Emmi to further consolidate its position as a provider of high-quality branded products outside Switzerland.

Emmi’s international activities are focused on its key markets of Italy, Germany, the UK, Benelux, Austria and the US. Late last year, Emmi significantly strengthened its position in both the UK and Germany with the acquisition of the global rights for the Onken brand from Dr Oetker for an undisclosed sum.