Julian Wild, a corporate finance partner with UK law firm Rollits, told DairyReporter.com that Arla’s recently completed mergers with UK-based co-operative Milk Link and German dairy processor Milch-Union Hocheifel (MUH) are likely to be its last for a while.
“Arla has plenty on its plate at the moment, so it is hard to see them getting into any more mergers,” said Wild.
“But I wouldn't be surprised to see more consolidation from Arla in future,” Wild added. “There are other co-operatives in the UK, such as First Milk, and in the European Union (EU) which in due course Arla may look at.”
Consolidation ‘inevitable’
Wild added that while Arla looks set to take a break from its consolidation efforts, it will inevitably continue elsewhere.
"Consolidation is inevitable especially for those supplying the highly concentrated retail base in the UK and continental Europe. The dairy co-operatives in the UK and Europe recognise that they have to be bigger."
"The smaller firms are not going to be big enough to compete going forward,” he said.
“The pressure for low prices is not going to go away. As a result, future dairy industry consolidation is inevitable.”
EC approval
Denmark-based co-operative Arla completed the mergers after getting the green light from the European Commission (EC).
Its merger with Milk Link enables the creation of the UK’s biggest dairy processor and the second Brussels-approved merger of the day with MUH saw the creation of the third biggest dairy processor in Germany.
“This is a big day in the company history of both Arla and MUH,” said Arla’s director of operations in Germany, Tim Ørting Jorgensen following the EC decision.
“This merger will provide Arla with new opportunities on the German market not only in terms of an increased supply of raw milk and access to a strong product portfolio, but it also creates a platform for increase export to growth markets like China.”
Arla estimates that its annual sales revenue will increase by DKK11bn ($1.9bn, €1.47bn) as a result of the mergers and by DKK2bn ($350m, €270m) for the remainder of this financial year.