Monday, 28 May 2012

Big news in farming

The big news in the farming world last week was the announcement of a proposed merger between Milk Link - the nation’s leading dairy farmer co-operative - and Arla Foods amba, one of the largest and most successful European dairy co-operatives, based in Denmark. This is one of the first mergers between a UK and foreign co-operative and if completed, the new business will be the biggest player in the UK dairy market.

The merger is the latest and most significant sign of the rationalisation in the dairy sector which has recently seen Robert Wiseman Dairies taken over by Muller, the collapse of Farmright and Rock Farm Dairies, being two small dairy companies based in Devon and Durham respectively and the restructuring of Dairy Crest.

Milk Link chief executive Neil Kennedy said the merger would improve returns for members and, after a three-and-a-half year transitional period, see them get the same return as Arla owners who have been paid on average 10% or 2-3p per litre more over the last five years than Milk Link members.

Information on the merger was due to arrive with Milk Link’s members at the end of last week and then there will be a series of meetings to discuss the merger proposals after which the members will vote on the proposal. If the merger is approved by the two co-operatives, it will also require the approval of the Competition Commission because of the size of the proposed new business.

The details of the merger are only just emerging but what appears to be known to date is that if successful, Milk Link’s standard litre price will rise by 1p per litre for three months from 1st July. From 1st October Milk Link’s price will be linked in a rather complicated manner to Arla’s “On-account” price and from 1st January 2016 Milk Link’s members will be entitled to receive the same price and bonuses due to full Arla amba members.

As far the capital held by existing Milk Link members is concerned, this will be transferred across to Arla Foods amba, up to a maximum level of 5p/litre. No interest payments will be made in respect of this capital during the transition period between 1 July 2012 and 31 December 2015, although each Milk Link member will receive a one-off compensatory cash payment of 57p for every £1 invested in their capital account. Any member that has invested more than 5p/litre will have the excess bought back on a £1 for £1 basis. Founder members of Milk Link with so-called "double rights" will receive a cash payment of around £1.14 per £1 of qualifying loan.

Clearly these are very early days in what looks like being a complicated merger process and as much as anything it indicates that the dairy industry is in the midst of some very significant restructuring which it is hoped will drive efficiencies out of the supply chain to the benefit of the dairy farmers in the long term.

James Stephen MRICS FAAV
Rural Practice Chartered Surveyor, Wells

T: 01749 683381

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