Two of the biggest names in the yellow fats business shocked the dairy industry on Thursday by revealing plans to join forces in the UK. The joint venture, subject to regulatory approval, begins operations early next year. Arch rivals New Zealand Milk and Arla Foods, the UK arms of two of the world's largest dairy co-operatives, are forming a new company, Arla Foods Fonterra. It will be responsible for marketing and distribution of the Anchor and Lurpak brands as well as developing new products in the yellow fats market. Although the structure and the management team will not be decided until early next year, the company will utilise the larger Arla food structure based in Leeds and close the NZM base in Swindon at the end of 2002. Simon Tuckey, md of NZM, dismissed suggestions the union was anti-competitive: "I would be surprised if the OFT referred this to the Competition Commission. If it does happen, then we'll cross that bridge when we come to it." However, the move took the market by surprise. Kerrygold marketing director Brendan Doyle said: "I can only see a conflict of interest. I find it difficult to understand how either of them are going to benefit." But Arla ceo David Salkeld denied there was a conflict of interest. He said: "The butter sector is in decline. At the end of the day, both companies are farmer owned co-operatives, and we have similar perspectives. Both brands will be stronger together." Salkeld also signalled that competition within the yellow fats sector would hot up. He added that the combined volume share in the yellow fats category would be 16%, compared to Unilever Bestfoods at 31%. He said: "The venture will certainly mean stronger competition for Unilever Bestfoods." Measured by value terms, Anchor and Lurpak enjoy a combined 36% share of the pure butter market and the link is expected to give the new company considerable negotiating clout. Salkeld added that they had a large number of ideas for the venture, and he hoped the link would be given regulartory approval within the next six weeks. Spokespersons for both firms said it was too early to comment on job losses. Arla Foods, the Scandinavian farmers' co-op, was set up in April last year with the merger of Arla of Sweden and MD Foods of Denmark. New Zealand Milk is part of the newly created Fonterra Co-operative Group formed by the merger of New Zealand's two largest milk processors, the New Zealand Dairy Group and Kiwi Co-operative Dairies, with the industry's export marketing body, the New Zealand Dairy Board. {{NEWS }}