Squabble over assets sees milk co-ops bottling out of merger

Feb 12 2008 by Steve Dube, Western Mail

HOPES of rationalisation in the milk industry are in ruins after two of Britain’s largest dairy co-operatives called off their proposed merger last week.

First Milk and Milk Link concluded months of negotiations and research with a brief joint statement saying the two companies were unable to agree a number of matters, including valuation of assets.

The two organisations, which have a combined turnover of around £1bn, handle around three billion litres of milk a year, and are owned by 4,250 dairy farmers in Wales, England and Scotland, had been given clearance to merge by the Office of Fair Trading.

In their joint statement, the Milk Link and First Milk boards said they had conducted due diligence and business planning with a view to a merger since October.

“At the end of this process there were a number of important issues that we were unable to resolve, including the valuation of the two businesses,” they said.

“Despite extensive discussions, it has not been possible to agree terms for a merger that either party felt they could recommend to their memberships at the present time.

“Both boards believe that strong farmer-owned dairy businesses are vital to the long-term future of the UK dairy industry. As such, both will now continue with their plans to grow and develop their respective businesses.

The Farmers’ Union of Wales called for a more detailed explanation. “They owe their members and all other dairy farmers a full and frank explanation why this engagement has broken down, especially as there was so much support for it from within the industry,” said Anglesey dairy farmer Eifion Huws, who chairs the FUW milk committee.

He said all co-operatives representing dairy farmers should merge into one to fight more effectively for increased farmgate milk prices and expressed disappointment that the chance to set a precedent had been lost.

Mr Huws, who originally called for all groups to merge in 2005, said Common Agricultural Policy reform and the changing market meant the industry needed a single strong co-operative voice to negotiate for dairy farmers.

“Even the Office of Fair Trading cleared the merger plans, despite its decision in 2000 to break up First Milk and Milk Link’s predecessor Milk Marque.

“Since then analysis of milk processors in other parts of the world shows larger co-operatives are continuing to get bigger. There is more sense in having a large single presence negotiating on behalf of all farmers.

“I believe it’s crucial that our own co-operatives should either work together or merge to meet the challenge that a global market place presents.”

NFU Cymru also expressed “bitter disappointment”. President Dai Davies, a dairy farmer from Whitland, said all dairy farmers would be surprised to hear that the merger had been called off.

“Quite rightly they will want to know exactly why the decision has been taken not to proceed and it is important that the companies communicate this transparently and accurately,” said Mr Davies.

“Although we can appreciate that bringing together two companies of the size of First Milk and Milk Link was always bound to be tricky, we cannot help but feel the British dairy industry will be left further behind EU competitors.

“We operate in an increasingly international market and to compete effectively businesses must rationalise or they will not survive long-term. A real opportunity to do this has been missed.”

The Royal Association of British Dairy Farmers also expressed disappointment.

“We believe the long-term interests of the sector would have been better served by a consolidated and restructured dairy industry,” said RABDF chairman, Lyndon Edwards.

“We hope that this deal is not dead and buried and that negotiations between the two co-ops can resume in future. A single, enlarged farmer-owned business of more than 4,400 members would lead to a stronger and more sustainable dairy industry.”