2 May 1997

Dairy trade closes ranks to MMs processing aim

By Philip Clarke

ANY attempt by Milk Marque to get into processing would be fiercely resisted by the dairy trade.

According to Dairy Crest chief executive, John Houliston, any move towards vertical integration would be viewed with "apprehension and dismay".

"They would be supplying us with raw material and competing with us in the dairy market," he said. "This would be wholly unacceptable."

And the suggestion that Milk Marque could achieve this by making an offer to Dairy Crest shareholders, many of whom are also Milk Marque members, was dismissed as "hypothetical". "Dairy Crest is an independent plc, susceptible to the same pressures as any other plc. But I find it hard to believe that farmers, who supported the flotation of Dairy Crest, would then take that course of action."

Speculation that Milk Marque is planning to get into processing has grown since plans were announced in February to issue shares to members to strengthen its capital base.

Faced with falling numbers and pressure on prices, many observers say the co-operative has no choice but to vertically integrate if it is to have a long-term future.

A bid for Dairy Crest is just one possibility. But with the 111m ordinary shares currently valued at over £2 each, and with about two-thirds of them held by non-Milk Marque members and City institutions, obtaining a controlling interest would be difficult and expensive.

A cheaper option would be for Milk Marque to buy existing manufacturing capacity, either from a dairy company in receivership, (as Scottish Milk has done), or from one of the big dairy companies looking to shed capacity, says industry consultant, Mike Bessey. "Several of the larger operators are less than enamoured with current margins and their long-term involvement in dairying."

Alternatively, Milk Marque could build on a green field site, though this would be "utter madness", he added.

Any of these options would probably attract the attention of the Monopolies and Mergers Commission, which prevented Milk Marque from owning processing facilities in the first place.

As such, the NFU is "revisiting" the idea of regional co-ops, dismissed in the early 1990s, to see if this offers any more scope for an integrated approach. This will be considered at next weeks milk committee meeting.

Meanwhile, Milk Marque says it is keeping a "watching brief", to see how the dairy industry evolves. "We would prefer our customers to make the necessary investments, but we reserve the right to do something ourselves if the market does not develop effectively," said a spokesman.