18 September 1998

Look to Continent

UK DAIRY companies are too small, too inward looking and have a poor product mix, industry consultant Mike Bessey told the EuroDairy conference.

To survive in the long term they must look to their European competitors for the way ahead.

The largest UK-owned processor (Express Dairies) ranked only 13th in the EU dairy league, while three out of the top eight UK processors were foreign-owned, said Mr Bessey. And while continental operators, (dominated by farmer-owned businesses), were getting bigger through "mega-mergers", UK players, (dominated by plcs), were now in the second division.

Quotas and falling demand had ossified the EU market, he said. To expand, Europes leading dairies had invested in the emerging markets of central eastern Europe and South America. For example, Swiss-owned Nestlé had processing in over 30 countries.

"On the Continent, if someone comes in to your market, the response is to go and attack their market," he said. "But UK companies have shut their minds to the idea that they need to be investing abroad to expand."

The UK industry was also blighted by its structure. "Milk is a perishable crop. Farmers want assured collection, guaranteed payment and high prices. Everywhere else in the world this has led to strong, integrated processing co-ops. But not in the UK, where the dairy farmer is totally in the hands of the buyer."

As such, the UK dairy industry was divided, with long-term tensions, low levels of investment and a lack of commitment, unsuited to global competition.

Lastly, UK dairying suffered from a poor product mix. Over-reliance on the liquid market had led to laziness by processors in terms of their manufacturing and export activities. But the liquid market had become a commodity market, "a graveyard for liquid oriented dairy companies". Unless UK buyers learnt from the Continental, they may cease to exist.

That was disputed by some trade representatives, who said they had a good record in terms of product innovation and return on investment. But there was a general acceptance that relations within the industry were poor, and a hope that the ongoing Monopolies and Mergers Commission inquiry would lead to a fresh start.

There was also a need for further rationalisation. &#42