February 27/Americas Food and Drink Insights -- Canada's largest dairy firm Saputo announced it is to buy U.S. dairy cooperative Alto in a deal worth $160 million. This move marks the firm's third major foreign acquisition in less than a year; in February 2007, Saputo acquired the Land O'Lakes industrial cheese business on the U.S. west coast for $216 million, and about a month later, it acquired the Dansco Dairy Products operations in the United Kingdom. These moves represent a new strategy of looking outside of Canada for growth after the firm became the leading player in its relatively small home-market.

These investments contributed to a substantial increase in revenues and profits in the three months to December 31, 2007. Revenues grew by 25% to reach C1.27 billion ($1.27 billion) thanks partly to the new acquisitions but also thanks to increased volume sales in Canada and higher prices in Canada and Argentina. Unlike many other dairy processors, Saputo has successfully managed to pass on the rising cost of milk to consumers, and its profits have risen in line with revenues. Excluding a one-off tax advantage, earnings for the same three-month period rose nearly 18% to reach C75.5 million ($75.4 million). In Canada, the company even managed to improve its margins by 80 basis points -- an impressive achievement when many other dairy processors are complaining that high milk prices are eating into their profits.

Consumption of plain milk has been fairly stagnant in developed markets including the U.S. and United Kingdom. However, dairy processors have benefited from a trend toward high-quality cheeses and the increased use of cheese as a food ingredient. In the U.S., consumption of cheese has tripled since 1970 and continues to grow. This trend has been a boon for Saputo, which has a long history of producing cheese, and its choice of acquisitions have also been made with this in mind. Land O'Lakes and Alto both specialize in Italian and American cheese, and Alto's products include a range of Alto Bella branded premium cheeses. Meanwhile U.K.-based Dansco specializes in producing mozzarella -- a cheese widely used as an ingredient but also increasingly being eaten on its own or in salads. This trend toward upmarket cheese is part of the global trend in many developed markets toward premium products -- a trend which looks set to continue for the foreseeable future and which Saputo is now in a strong position to capitalize on.

From the March 3, 2008, Prepared Foods e-Flash