Consolidation and mergers in the dairy industry are “inevitable”, according to Dairy Industry Ireland’s director, Conor Mulvihill.
Mulvihill said that closer integration in the industry is being discussed at all levels.
"From the Department of Agriculture to farm organisations, people have been saying that consolidation will happen, but to date, it has not," Mulvihill told the Irish Independent.
"What has occurred here has been organic growth. In Ireland, people operate very locally, and the co-op is a part of this, there is a lot of loyalty at farmer level towards the organisations. In addition, the farmers own the co-ops."
Ireland’s dairy-processing sector consists of a vast number of small co-ops that use larger groups like Glanbia, Kerry Group and Ornua to sell their products.
Mulvihill pointed out the flaw in this system, highlighting that in New Zealand, Denmark and the Netherlands, there is only one “super co-op”.
These smaller groups, Mulvihill believes, are the competition that Irish farmers end up facing.
"If, and when, the Lakeland-LacPatrick merger is agreed, 80% of the milk in Ireland will be in the hands of four huge processors - Kerry Group, Glanbia, Lakeland, and Dairygold."
That sentiment is echoed by Jim Mulqueen, a partner at Grant Thornton, who told the Irish Independent that he expects to see continued consolidation in the sector as margins come under increasing pressure.
Speaking to the Irish Independent, Mulqueen said that “there are regular discussions among certain co-ops around consolidation”.
"We also see opportunities regionally for maybe neighbouring co-ops, or co-ops with the same sector focus, to operate together."
He listed cost savings and synergies as the main drivers of this mentality, saying that they add to a business's bottom line, and help a company run more efficiently.
"It not as simple as taking the profit of one company and the profit of another, and having a bigger profit, some of it could be strategic in terms of location, but typically cost-saving, synergies."
Mulqueen said he doesn’t envisage Ireland replicating the system seen in the aforementioned countries, partially because of the Competition and Consumer Protection Commission.
"I could see some resistance at local level to increased consolidation in the marketplace, but I think that before we get to have one or two super milk producers the Competition Authority will step in if they feel competition is being eroded.
"They are the appropriate watchdog, and they will ensure that competition is maintained," he said.
© 2018 Checkout – your source for the latest Irish retail news. Article by Aidan O’Sullivan. Click subscribe to sign up for the Checkout print edition.