“Does the proposed takeover of Dairy Crest’s Liquid business by Muller Wiseman pose a threat to the English dairy farmer?” I was asked this question recently by a Dairy Crest supplier. The MMC or at least someone, possible one of the supermarkets, obviously think that there is an issue here as the merger is now to undergoing a full investigation. As someone who inherently dislikes markets with fewer buyers, my initial reaction to this deal when announced was that it was not good news for the UK dairy farmer but on reflection I now think otherwise.
For many years I have felt that the UK dairy farmer was being let down by their processing partners and their failure to invest in their business. Lack of product development by the major milk buyers and unwillingness by the majority to look at the wider world plus the strong global demand for milk product was evident up until the last few months. This seemed to support the view that UK dairy farmers were being let down by the plc partners. This suspicion has been confirmed over the years by the failure of companies like Dairy Farmers of Britain, the Westbury venture and the perilous state of First Milk. It was not surprising that many dairy farmers felt let down by their plc or co-op milk buyers.
If successful, the takeover of Dairy Crest’s liquid business by Muller will effectively mean that there are only two major buyers interested in the liquid sector. I know that there are a number of middle market players, but they probably do not have the financial clout to do anything in the liquid market but to be weak sellers. It is no coincidence that the two left, Muller and Arla, are the only two companies that have invested heavily in the milk processing over the recent years and that both of these companies do not have to answer to the city and it’s short term demands for dividends. Both of these companies have invested heavily, not only in processing facilities, but also in product development and in building their brands, something which I think the UK city fail to realise.
This suspicion was of confirmed recently when I was lucky enough to visit Mash Direct in Northern Ireland. This food accompaniments business has grown from nothing to a turnover in excess of £15million/year in a period of 12 years. New product development has been key to this company. During our discussions, we got round to discussion other family food businesses that had shown strong growth like Yeo valley and Tyrells Crisps both of which have developed strong brands and not had to bow to the demands of the city and their desire for ever increasing share price and dividends.
Perhaps the proposed takeover of the Dairy Crest liquid business by Muller Wiseman will benefit the dairy farmer, after all as Muller, a family business, does have a strong record of investment and product innovation – witness their investment in butter processing. So perhaps my suspicion about the takeover will turn out to be ill founded but time will tell, but one weak seller will have been removed from the market.

William Waterfield