Glanbia puts end to merger moves
He told the Agricultural Science Association annual conference in Kilkenny the food group’s emphasis would be on co-operation, shared assets and joint ventures in processing rather than on mergers or amalgamation.
Mr Moloney said scale and competitiveness of dairy producers, and suggestions as to how to promote consolidation, must be addressed if the milk supply base is to be viable in the context of the mid-term review and likely WTO changes.
There had been significant consolidation in the past decade. Glanbia, Dairygold and Kerry now account for over 70% of dairy production.
Glanbia has already re-organised. The end result is a business with modernised assets, which is ready for the challenge of the future.
Its Ballyragget plant is the largest of its size in Europe in terms of daily manufacturing capability.
“Going forward, we believe all processors in Ireland should seek to optimise their current position before seeking further integration, rather than using integration strategies as a means to clean up current inefficiencies. As suggested in the Prospectus report, we believe there are opportunities for joint ventures in new assets which can deliver scale and efficiencies in core products, allowing individual processors to pursue specialist activities in growing value added.
“In this regard, Prospectus sees the need to rationalise the number of processing plants for butter, powder and casein from 11 to four. We accept that approach.”
Mr Moloney said Glanbia’s own experience in the US and in Ballyragget has demonstrated the value of large-scale base operations as an enabler of competitiveness and of downstream value added.
He said joint ventures and alliances as opposed to mergers allows individual companies to focus on their own growth strategy while addressing the competitiveness of primary processing activities.
It also removes the element of politics and swaying votes associated with mergers which shift resources away from restructuring into supporting milk prices, which is not an option in the short term given the likely reinvestment needs.
A key factor is that participants enter into alliances having already addressed their own internal efficiencies rather than the new joint venture entities having to absorb this cost. The key driver here is Irish co-op boards, he said.
Lakeland Dairies chief executive Ed Prendergast said co-operation among dairy processors at a regional level must precede the national consolidation goals arising from the Prospectus report.
“The ambition of large scale consolidation within the Irish dairy industry has obvious benefits but it is not a black and white issue and it is clearly not something which will happen overnight.”
ASA president Pat Cahill said Ireland’s major competitors on export markets, such as New Zealand, Australia and the US, have rapidly restructured their processing sectors in recent years.
“These countries will exploit fully the commodity markets in the years ahead working at world market prices,” he said.
