28 May 1999

Industry says Glanbia to sell liquid milk interests

By Robert Harris

RECENT reports that Glanbia is to sell its liquid milk business to Express, a move which would signal the long awaited start of major rationalisation in the milk processing sector, are being played down by both companies.

But some industry analysts suggest it is only a matter of time before an announcement is made.

For a predicted price tag of about £90m, Express, which already has a 22% share of the liquid milk market, would gain a further 5%. This would give it over a quarter of supermarket supplies and about 30% of the doorstep market. The move would leave Glanbia (formerly Avonmore Waterford) to consolidate its position as the UKs leading cheese-maker.

"There is a lot of speculation out there," says Michael Patten, Glanbias group corporate affairs manager. "We have made no secret of the fact that there is huge over-capacity in the liquid milk sector.

"In our view, it is overdue for rationalisation. We have had discussions with Express both recently and in the past, but there are no agreements in place." An Express spokesperson says the firm is "unable to comment on speculation".

Analysts agree that six major players is too many, especially given recent moves by supermarkets to use just two or three suppliers apiece. And with milk typically at 89p for four pints, this market has become the ultimate commodity, says one source.

Glanbias share of the liquid market is less than a quarter of Expresss share and well behind other leading players like MD Foods and Unigate, says another. "The move makes sense."

United Milk Producers, formed earlier this year from five producer groups, is, at 200m litres a year, a big supplier to Glanbia. Although unwilling to comment on any specific deal, chairman, Richard Ashworth, is not surprised by the reports.

"This kind of rationalisation would not be unexpected," he says. "But it would leave farmers in a weaker position. The message it sends to us is that bringing together farmer-controlled businesses has to be the way to go."

Meanwhile, Nestlé intends to cut its workforce after losing more than half of its milk export business.

Almost half of the proposed 207 job losses will occur at Dumfries next year. Remaining redundancies will be shared between Dalston, in Cumbria; Ashbourne, in Derbys; and Omagh, in Co Tyrone.

The company blames BSE for shutting some markets, the strong £ and economic problems in the far east. Nestlé insists the proposals will make no difference to farmers.

Low prices look set to beset the industry for some time to come, says independent consultant Mike Bessey in a week which saw UK intervention doors open for butter.

Average world butter prices over the past four months have dropped more than 20% compared with the 1998 average to about $1500/t (£925/t). Skimmed milk powder is also down, by about 12%, to $1250/t (£770/t). &#42