Milk is one of grocery’s most politically charged categories, and on Thursday the dairy industry delivered an electric deal to match.
In the week United Biscuits was snapped up by turkey’s Yildiz, news that Dairy Crest is to sell its dairies division to German-owned Müller is likely to feed jittery narratives about yet another major British food business moving into foreign hands.
“Never mind liquid milk. The real churn could be felt in the butter market”
Julia Glotz, managing editor
But such concerns are a distraction. There are far bigger issues facing the UK dairy industry and retail grocery sector more widely, many of which this deal neatly encapsulates. Chief among these is price. With global dairy markets tanking, farmgate milk prices being slashed and a supermarket price war raging - in which milk is a key weapon on the front line - speculation as to what the deal means for milk prices (for consumers and farmers) and margins (of the processors and retailers) is likely to run high. Retailers in particular can be expected to view DC’s exit from liquid milk with some trepidation - and who could blame them, given their choice of milk suppliers is about to be slashed.
Despite this, many industry experts think the deal unlikely to face much resistance from regulators - even if retailers kick up a fuss behind the scenes. Fewer still believe the infamous ‘£1 for 4 pints’ will become a thing of the past. Although two major processors will have more leverage against retailers than three, milk is too strategically important for the supermarkets to allow their pricing strategies to be derailed.
More importantly, while the deal is a liquid milk deal first and foremost, many observers are already looking beyond milk for the biggest long-term impact. After all, the £80m Müller is preparing to cough up will buy it not just DC’s liquid milk assets but also its bulk butter and skimmed milk powder operations. A rather nice fit, given Müller itself has just started making a play for the butter market with its new butter plant at Market Drayton - and one that has the potential to put the heat on Arla’s market-leading Lurpak and Anchor brands down the line.
So never mind liquid milk. The real churn could be in butter.