Report: Dairy Could See New Consolidation
July 11/Business Monitor International Ltd. (BMI) -- A new report from Rabobank International has highlighted the limited amount of merger and acquisition activity in the global dairy sector over the last 12 months. The turmoil in global financial markets is held up as a key reason for the limited amount of consolidation. However, the report suggests that over the next 12 months this could change, with the current market circumstances putting many dairy producers under strain and pushing companies to consolidate.

This forecast looks like it could be borne out immediately, with French dairy group Lactalis reportedly poised to strike for struggling French rival Entremont Alliance. Entremont made losses of 34 million euros in 2008 and around 10 million euros in the first quarter of 2009 but has denied reports in the French media that it is on the verge of bankruptcy. The firm has attributed its poor performance to a global fall in the price of powdered milk and butter and high domestic farmgate milk prices.

A spokesman for Entremont has revealed that there are strong indications that Lactalis will make an offer for the business in the second half of July. However, union representative and secretary of Entrement's work council, Jacques Dechasse, has suggested that the move could face regulatory hurdles, as it would give Lactalis a monopoly in the French market for emmental. Dechasse also suggested the move would have "disastrous consequences" for the firm's workforce.

The Rabobank report reveals that Lactalis was among the most active consolidators in the last 12 months with acquisitions in France, Croatia, Poland, Romania and Switzerland. The firm appears intent on maintaining this acquisition drive into the second half of 2009 and in June, following the demise of UK-based Dairy Farmers of Britain (DFoB), Lactalis snapped up the firm's highly prized Lubborn Cheese dairy, which brought with it the DfoB's best known brand, Seriously Strong Cheddar.

Lactalis's move for the struggling Entremont would continue this strategy, adding weight to the firm's portfolio of cheese brands for what can be expected to be a bargain price. The current market conditions are likely to throw up similar opportunities in the next 12 months, and BMI does not expect Lactalis to be the only opportunist in town, with all of the world's top players likely to be pushing to expand so as to reap the benefits of a recovering global economy and an expanding dairy market.

From the July 20, 2009, Prepared Foods E-dition