Dairy’s ability to play into key consumer trends has heralded a busy year of deals, usually a sign of a sector in good health
There were smiles all round as Arla and DMK Group boards shook hands on a multibillion-pound deal in June. Pending the green light from regulators, the merger between the two dairy behemoths is set to create Europe’s largest dairy co-operative. The vast network will house more than 12,000 farmers, eight billion litres of processed milk and €19bn (£16.5bn) in consolidated revenues.
“This partnership advances our vision for the future of dairy: delivering nutritious, high-quality products and driving innovation in Europe and beyond, while securing a strong milk price for our farmer owners,” said Bas Padberg, MD of Arla Foods UK, of the move.
Although it might be the biggest – and the most impactful – deal in dairy, it isn’t the only one to make headlines in the past year. A spate of M&A began in June 2024, when Cornish supplier Trewithen Dairy was acquired by German dairy processor Ehrmann.
The following March, Somerset’s Yeo Valley snapped up gourmet yoghurt brand The Collective for an undisclosed sum. A month later, Müller snapped up fast-growing gut health specialist Biotiful Dairy for a reported £100m-plus – less than a year after it confirmed its acquisition of west Lancashire family-owned Yew Tree Dairy.
Still fresh from the fluctuating farmgate prices, slumping profitability and lagging consumer demand that dogged dairy in the first few post-Covid years, the renewed pace of M&A feels like a sign that the sector has well and truly found its feet.
But is it that simple?
On the one hand, there is undoubtedly plenty of optimism and opportunity bubbling beneath the recent spate of deals.
The acquisitions of specialist or premium dairy players Biotiful and The Collective, for example, speak to the increasing confidence in the demand for added-value products.
Earlier this year, Richard Williams, chief executive of Müller Yogurt & Desserts, described its decision to swoop for kefir brand Biotiful as a “no-brainer”.
“Not only was this a business that we’d long admired, but it fits really nicely into our existing portfolio of brands, helping us expand into new growth areas,” he said. “Through our investment, we are accelerating its growth potential, benefiting both consumers and our retail partners.”
Biotiful chief marketing officer Vince Lawson adds: “The acquisition is an exciting move for both businesses. As one of the fastest-growing brands in the market today, the power of Müller behind Biotiful enables further scale and resource to accelerate future growth of the brand.”
Moving up the value chain
For The Collective, too, its acquisition by Yeo Valley helps deliver synergies both in manufacturing and shared agendas on topics like sustainability, explains general manager Tor Hunt-Taylor.
Yeo Valley “led the way on really pioneering a regenerative agriculture agenda and that’s hugely exciting for us in terms of alignment to The Collective as a brand and where we want to be”, she adds. “We also have the opportunity now to bring multibrand category plays to the retailers and to market.”
On Yeo Valley’s side, it gained access to an innovative brand with plenty of functional lines (p10). That tallies with many recent deals, which have been “about moving up the value chain and getting access to higher value-add products or positioning”, says Garyth Stone, a managing director at Houlihan Lokey’s Consumer, Food & Retail Group. He flags Arla’s acquisition of Volac’s Whey Nutrition business in 2024 as yet another example. “There’s very strong demand for protein, protein fortification, protein supplementation. That market is growing very well. But it’s not as though anyone can just go out and make whey protein. It’s very complex, requires a lot of know-how, and a lot of capital investment.”
Though Arla had access to this know-how on mainland Europe, it lacked the facilities to do so in UK – hence its strategic acquisition of the Volac division.
The activity is a sign of how well dairy is playing to health trends – be it gut health, protein or a pushback against UPFs.
“The investment reflects renewed confidence in the long-term potential of the industry”
Ed Watts, Trewithen
Dairy is seen as a source of protein, whole food and a naturally nutrient-dense option for snacks or kids’ foods, putting it in a strong position, says Hunt-Taylor. Greek yoghurt, for example, had previously been consigned to a “utility player” in customer fridges. But in the current landscape, it’s pivoted to an affordable and versatile option for health-conscious shoppers, which plays into active health trends around gut health and protein.
Attitudinal changes have sparked a complete reversal in fortunes for some products. yoghurts’ fruited big pot sector, for example, “had been in decline for nearly 10 years and that’s back in growth again”, Hunt-Taylor adds. “Though it’s a very different range of offerings, with brands that are very much focused on protein or low fat, or Greek style.”
Amid such revivals for dairy, migrating spend to plant-based alternatives has slowed, points out Stone. “There was a fear that dairy was going to get totally wiped out. It’s clearly been proved that it’s not. There has been a certain transition to plant-based and I don’t predict that’s going to roll back, but it’s at nothing like the same rate that’s gone on before.
“It continues to be more expensive. And while some of the products have improved in taste and texture, they are still inferior to traditional dairy.
“I would say that the consumer understanding of the relative health benefits have matured significantly, such that consumers understand that it is a false equation to believe that plant-based is healthy and animal-based dairy is unhealthy.”
UK appeal
Other deals speak to the UK’s position as a solid investment opportunity for European dairy players. Even though AHDB tracked a decline of about 200 in farmers in the past year, production levels continued to grow, says lead dairy analyst Susie Stannard.
It comes against a backdrop of greater investment at the sites that remain, relatively robust farmgate prices and an “air of confidence coming through”, she adds, even if that hasn’t translated to farmers. AHDB forecasts a 3.2% uplift in production this year, too. All of which position the UK as an appealing investment prospect.
Take Trewithen. As well as an upgrade to its facilities, Ehrmann is set to use it as a base for manufacturing and distributing its own dairy puddings. The deal is a win-win, insists Ed Watts, chief commercial officer for the newly combined business.
“[Ehrmann] has committed a lot of investment into the dairy with new equipment so it’s very busy on the site. They’ve also brought in strong support for the core Cornish business with excellent branded opportunities across added value milks, creams and butter.
“It reflects renewed confidence in the long-term potential of the industry,” Watts adds. “So many sectors and categories are growing well within the UK, and I think we’re quite advanced in terms of health ranges and the government’s agenda on partnering with retailers to provide that.
“It gives us the opportunity to innovate around changing consumer needs, especially in areas like protein and indulgence and sustainability.”
Lawson echoes the sentiment: “The recent wave of M&A in UK dairy reflects a sector that’s evolving to meet changing consumer needs. Consolidation enables brands like ours to scale faster, innovate more boldly, and reach more consumers – without compromising on quality or values.”
There are also more complex drivers fuelling the heady pace of consolidation in the past year, however.
“The world has been uncertain for the last three to five years maybe, and one way to try and mitigate against that is to invest in strength”
John Giles, Promar International
One is the ongoing vulnerability felt by smaller dairy companies that lack the backing of big businesses. So says Rich Clothier, MD at Wyke Farms. “It has never been more challenging to run a smaller or independent business,” he argues.
“Labour costs have increased massively due to National Insurance changes – but also proposed changes to employment law will hit smaller farmers and food producers more than large businesses.
“In a larger labour force, it is possible to fund more HR type functions and draw on reserves of spare labour. But in small businesses, this is much more challenging,” he adds. “Labour challenges combined with increased financial charges and overall volatility mean that smaller businesses are faced with an increasingly challenging landscape.”
Further challenges can be felt across the Channel and further afield – providing further motivations for M&A activity. Arla and DMK’s planned merger, for instance, provides access to a larger, more stable milk pool. That comes at a time of declining supplies in some parts of Europe, in partly fuelled by stricter environmental policies.
“In large parts of north-western Europe, particularly in the Netherlands, Belgium and north west Germany, you’ve got high levels of intensive animal production and, therefore, for environmental reasons, they’re having to close down and reduce dairy production,” explains John Allen, founder of Kite Consulting. “That means milk processors in Europe are facing tighter supply.”
That’s been further exacerbated by outbreaks of bluetongue virus, first detected in the Netherlands in 2023 and now active in 13 European countries. As a result, the Arla deal “is as much about accessing supplies of milk as it is about getting synergies from cost control.”
Then there is the global uncertainty that continues to reverberate across all food supply chains. Consolidation has been taking place across dairy “ever since the Milk Marketing Board was deregulated 25 years ago”, says John Giles, divisional director at Promar International, but the pace has accelerated. That’s partly in response to supply chain shocks like Brexit, Covid and new trade deals.
“The world has been quite uncertain for the last three to five years maybe, and one way to try and mitigate against that is to invest in strength,” Giles adds.
Geopolitics isn’t the only contributor to uncertainty, either. Major fluctuations in consumer demand also look primed to present both opportunities and challenges.
Cathedral City owner Saputo Dairy UK, for example, has cited demographic shifts and changes in demand as the reason for its decision to stop manufacturing galacto-oligosaccharides and demineralised wheys for the infant formula market in April – a move that could lead to 80 job losses.
“Over the past decade, the global infant formula market has experienced notable shifts,” says a spokesperson for supplier. “Declining birth rates, evolving consumer preferences for more tailored products, and changes in regulatory frameworks have all contributed to a more competitive landscape.
“In addition, fewer infant formula manufacturers are using GOS in their products, further reducing its demand. These developments have influenced our strategic direction, prompting us to reassess our product portfolio.”
An uncertain future
Of course, it remains to be seen if consolidation will leave dairy in a better position to navigate the rapid market changes and ongoing geopolitical volatility.
For some, it’s unequivocally a net positive for the sector. “There’ll be more consolidation, but I think of it more as strategic alignment,” insists Watts. “It’s combining strengths, sharing expertise and unlocking new growth opportunities. I see it as a positive for the industry as a whole.”
Others are more wary of the impact. The implications of increasing consolidation “for farmers and retailers will be the same in as much as there will be less choice of who to deal and do business with”, warns Clothier. “This reduction in competition will play out in the form of increased prices, less innovation, less flexibility and ultimately poorer value to the consumer.
“A vibrant food sector should have thriving grassroots with businesses of all different sizes. But sadly government policy and global disruption makes this more challenging.”
It’s in part why Giles advocates for all companies to develop an understanding of how dairy fits into the broader geopolitical landscape.
“As well as being a good farmer and a good processor, you also need to be a student of what’s going on around the other in other parts of the world,” he says. That may be understanding the “critical” dynamics between the US and China, conflict in the Middle East and between Ukraine and Russia, or Trump’s next move when it comes to tariffs.
“If ever we needed reminding that we live and operate in a global economy, that time is now.”
And that applies whether you find yourself part of a newly formed dairy powerhouse – or one of the few small UK operators that continue to go it alone.
Global milk supplies teeter ‘on a knife edge’
Growing global demand for dairy coupled with tightened milk supplies in many leading European markets has had a notable impact on UK dairy aisles in the past year.
Rampant wet weather in the 2023/24 season restricted milk supplies in early 2025 and trickled down into on-shelf prices. Some products were up to 60% more expensive in the UK dairy aisle as of February, revealed The Grocer.
Then came a spring flush that heralded the biggest daily volume figure ever recorded in milk deliveries: 39.02 million litres on 4 May [AHDB].
In spite of such volumes, farmgate milk prices held, points out Susie Stannard, lead dairy analyst at AHDB. “Normally when you get a lot of production coming through, people would drop the milk price and switch off the taps.”
But that hasn’t happened for a couple of reasons. For one, production challenges in mainland Europe, as a result of environmental regulations and outbreaks of bluetongue, have allowed UK farmers to keep producing without being penalised on price, says Stannard.
The impact of weakened output in the likes of Germany and France has been compounded by growing global demand for dairy products. “That’s been driven by the growth in the global population but also an emergence of global middle classes,” adds Stannard.
“As nations become wealthier, they tend to want to westernise their diets and so products like baked goods with cream, yoghurts and functional dairy become more popular.”
It’s a trajectory that could even pave the way for UK dairy doing more business abroad. In China, for example, low farmgate prices and high production costs – coupled with bouts of extreme heat – have taken a toll on domestic stocks. As a result, Rabobank anticipates China’s net dairy imports will rise 2% this year.
China’s situation helps illustrate the delicate balance between supply and demand. If nothing changes, it’s likely prices will head upwards, believes Rich Clothier, MD of Wyke Farms.
“Supplies are on a knife-edge,” he says. “There is a global shortage of dairy fats, partly driven by consumers returning to natural dairy, but also an increased global demand as world populations increase. With supply and demand being in balance, much will depend on how the EU approach their nutrient neutrality – ie phosphate and nitrate balances. If they are too aggressive, we will see a shortage of European dairy products, which will result in rapid consumer price increases early next year.”
Why is confidence among UK dairy farmers at an all-time low?
Production volumes might have edged up – while farmgate prices have held their own – but that doesn’t mean UK dairy farmers are feeling optimistic.
Short-term confidence among UK dairy farmers has plunged 10 points since last year, down to –35, according to the most recent NFU Farmer Confidence Survey.
Mid-term confidence has fared even worse, slipping 16 points to –38.
“Dairy farmers have good memories and, whilst they may have had one good year, they remember bad years, too,” says Paul Tompkins, chair of the NFU’s national Dairy Board.
“What’s very clear in dairy is that collectively we don’t have a clear enough strategy to give dairy farmers some understanding about how they’re going to navigate the issues we can all see ahead of us – whether that’s water quality, air, soil, landscape recovery, land use framework or pressures on land availability.
“All those things make farmers think the next 10 years of production is going to be difficult. We can meet those challenges collectively between us – as retailers, processors, farmers, government and anybody else that wants to get involved – but we haven’t given our dairy farmers across the country the confidence yet that there’s a way through.”
UK dairy farmers are currently staring into “the same abyss” as their European counterparts when it comes to the impact of stringent environmental regulations, Tompkins points out. They’re grappling with restrictions on Nitrate Vulnerable Zones and requirements for costly slurry storage as part of the government’s bid to reduce agricultural ammonia emissions. Meanwhile, they are navigating a funding landscape that makes decisions based on carbon footprint as much as commercial viability.
Despite this rising swathe of expectations, the government abruptly closed applications for the Sustainable farming Incentive (SFI) in March, leaving many planned agri-farming initiatives in limbo. A revised SFI opened in July but with a far smaller pool of farmers eligible to apply. It’s expected applications won’t reopen fully until the start of 2026.
The NFU has forecast farmer numbers will fall below 7,000 next year if nothing changes, says Tompkins. “How long can that reduction continue without impacting food supply?”
“As consolidation has happened, production has remained relatively stable. But stable doesn’t deliver for a growing population and it also doesn’t deliver continuity of supply.”
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