Lactalis takeover puts milk prices in focus

Lactalis’ £988m takeover of Saputo’s UK dairy business could put fresh pressure on milk prices and cheddar production, but farmers are not expected to see immediate changes to their contracts, analysts say.

The deal, announced on Friday 14 August, will bring major brands including Cathedral City, Country Life and Wensleydale under the ownership of the French dairy giant, with completion expected by the end of March 2027, subject to regulatory approval.

See also: Lactalis agrees £988m deal for Cathedral City owner Saputo

For dairy farmers, the longer-term implications could be more significant than the immediate change of ownership.

“I don’t think Saputo has made any money out of the factory, and it hasn’t been the foothold into Europe that it might have expected – but that’s just speculation,” said Chris Walkland, dairy market analyst at the Walkland Partnership.

Lactalis has a track record of growing through acquisitions.

“Every couple of years or so, it acquires another group somewhere,” said Nick Holt-Martyn at The Dairy Group. “This is the next development.”

But he warned producers should not expect wholesale changes overnight. “It’ll be an evolution, not a revolution.”

The NFU said farmers supplying affected sites would need clear communication as the transaction progresses.

“The proposed acquisition is likely to impact a large number of farmers who supply sites across the UK,” said Ian Harvey, the NFU’s Dairy Board chairman.

“It will be important that producers continue to receive regular updates to ensure any impact on their businesses is fully understood.

“It’s positive that Lactalis wants to invest in the UK dairy sector, demonstrating the potential and opportunity for growth, although further consolidation within the industry, among both producers and processors, remains a concern.”

Price challenge

One key question is whether Lactalis, which already has several well-known brands to its name, like President, Seriously and Galbani, will improve its milk price offer.

“Lactalis has never paid the top cheese price in the UK, it has always been mid to low table,” said Mr Walkland.

“It might have to step up on that front, because it’s the most competitive milk field in the country.”

There is also uncertainty over Lactalis’ existing Stranraer operation and whether cheddar production could ultimately be rationalised around Davidstow, home of Cathedral City.

“I don’t know how anybody can pay a billion pounds for a cheese plant in the UK and make money out of it; Saputo couldn’t and didn’t,” warned Mr Walkland.

Yet, Mr Holt-Martyn said the underlying market remained resilient. “Consumers are still spending the same, if not more than before,” he said.

“The money is still flowing in from consumers; the problem is it’s not getting to the producer.”