Arla and Milk Link prepare for role in international venture

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DAIRY business chiefs in Leeds and Bristol and Denmark and Germany have shaken hands on a deal which will make British farmers part of a mega-business reaching all over the UK and much of the rest of Europe.

The boards of Arla Foods Amba, a Northern European co-op with UK headquarters in Leeds, and Milk Link, a British co-op based in Bristol, have voted for a merger which members and regulatory authorities are likely to approve along with another Arla merger announced yesterday, with a German co-op.

It all means that 12,400 Scandinavian, German and British farmers will become partners in an organisation with influence in most of Europe – and which will become easily the biggest player in its sector in the UK.

Milk Link is bigger in cheese here and Arla in liquid milk; they mainly serve different regions; and they already collaborate in butter and milk powder production. So the businesses are forecast to complement each other without much crossover and factory staff – including 1,300 at Stourton, Leeds, and 130 at Settle, North Yorkshire – are unlikely to be affected. However, there may be some consolidation of management and central services. The location of the combined UK head office has not been decided yet, the chief executives said.

Peter Lauritzen, the Danish chief executive of Arla Foods UK, and Neil Kennedy, the chief executive of Milk Link, said they expected both customers and farmers to benefit from their combined clout.

European farmers have been getting better prices than the British for some time because most of them sell to big co-ops which fight their corner, rather than to companies competing to offer the supermarkets the cheapest deals.

Now the British owners of Milk Link and the Danish, Swedish and Dutch owners of Arla will become partners in a business which can juggle opportunities in all their countries and the many more in which they buy and sell. Arla generally pays better for milk than most UK buyers already and Milk Link’s farmers can expect equalisation – over the next three years – to benefit them.

The merger process will start with Milk Link becoming a corporate member of Arla but all its 1,600 individual members will become equal stakeholders in the long run.

Arla’s 1,300 UK suppliers might wonder what is in it all for them. Many of them have had their milk price cut in the past month, in the latest industry price war, and there is no immediate prospect of the merger putting it back up again. They are not full members of the Arla co-op, although they do have a small stake in Arla UK, which is gradually being built up through a compulsory levy for share purchase.

Their comfort is in the assurances that the merged business will be stronger and more profitable.

The National Farmers Union has strongly endorsed the merger.

Its dairy business specialist, Rob Newbery, said: “It puts UK farmers and their investments into a bigger and broader-based business which will be in a strong place to negotiate with retailers.”

Mansel Raymond, NFU dairy board chairman, said: “This is a hugely significant event.

“UK farmers have looked on enviously at the apparent disparity between UK and mainland European milk prices, but also at the strength of larger European dairy co-operatives which have used their scale and efficiency to command market-leading prices and build market-leading brands. This merger puts Milk Link members in a far stronger place with a more secure future.

“Arla Milk Link UK, the result of the merger, will be a corporate member of Arla Foods Amba with two positions for UK directors. This will be a truly European board to lead a truly European co-operative, in which UK farmers will have an equal stake.”

Mr Raymond said that although the deal did not immediately affect the status or terms of the Arla Foods Milk Partnership (the suppliers), it was good for their future.

He said: “The injection of a new force in the UK market for milk at farmgate will likely have positive implications for the wider UK dairy farming industry. The operations in the UK will have the potential to command better returns for members and suppliers.”