Glanbia and Connacht drive milk change
Published 06/09/2011 | 05:00
The rate of consolidation in the liquid milk industry has been relentless over the last year. Kerry's decision to exit the business started the wheels rolling, but the process stepped up a gear with the reported negotiations between Donegal Creameries and Connacht Gold and the recent purchase of the Tullamore Dairies liquid milk brand by Glanbia.
The liquid milk sector was once seen as a licence to print money. But the growing power of the multiples and savage competition between milk processors for market share has turned it into a dangerous and costly business.
Donegal Creameries' experiences over the last few years demonstrate just how quickly the liquid milk trade can turn sour.
Although Donegal is understood to have almost trebled its liquid milk output since 2008, returns from the business have collapsed. Profits from its milk division fell from €2.1m in 2009 to just €20,000 last year.
The multiples' push for their 'own label' milk at the cost of branded milk is the main reason that margins are under pressure for the dairies. It may be about to get even tighter for them given the decision by Musgraves to introduce tenders for its own label milk contracts.
The companies with the scale to survive are now Glanbia, who dominate Dublin and Leinster, Connacht Gold, with a lead role in the northwest, and Arrabawn, the major player in the west and midwest.
However, what farmers want to know is whether this scale will deliver a sufficient premium over the manufacturing price to keep producers in liquid milk.