‘Pukka’ new Arla dairy will not help supermarket milk margins, analyst predicts

By Ben Bouckley

- Last updated on GMT

Related tags Milk Arla

‘Pukka’ new Arla dairy will not help supermarket milk margins, analyst predicts
Arla announced on Wednesday that it had broken ground on its new 1bn-litre UK ‘super dairy’ near Aylesbury, but one analyst believes that the extra capacity will not help supermarket milk margins.

An Arla Foods UK spokeswoman told DairyReporter.com that the £150m (€179m) construction was scheduled to take 75 weeks (roughly 18 months), and said that the firm had no current plans to cut capacity elsewhere within its dairy network.

She said: “Our current portfolio of dairies is almost running at maximum capacity. The new dairy will create the additional capacity we need to achieve our growth ambitions.”

Commenting on the potential effects of Arla’s new dairy on listed rival Dairy Crest, Shore Capital analyst Clive Black said in a note yesterday: “A pukka new dairy can be expected to attract new business as supermarket buyers are dazzled by its shining stainless technology.”

Black said the dairy could represent a reasonable step-up in industry capacity in Britain, “the desirability of which is subject to question in some quarters”​.

Dairy Crest’s doorstep decline

According to Shore Capital’s predictions alone (given Arla’s comments above) he added that, if​the firm closed dairies in Ashby de la Zouch, Hatfield Peverall and possibly Oakthorpe (East London), the capacity uplift would be circa. 200-350m litres of additional volume, rather than 1bn litres.

Asked to clarify this comment (given Arla’s denial), Black’s colleague Shirley told DairyReporter.com: “There’s been no kind of official announcement [regarding closures]. But it’s our expectation that they wouldn’t put 1bn litres of capacity in without taking some out elsewhere.”

Nonetheless, Black predicted that the Arla investment would not help industry margins, while he warned that rival Dairy Crest also had to manage a sustained decline in doorstep deliveries, “where despite much innovation, e.g. milk & more, the economic downturn has sustained contraction at circa. 10% + per annum”.

Following the news that Muller’s £280m (€334m) bid for Robert Wiseman Dairies was recently declared wholly unconditional (with 93.9% of shareholders accepting the 390p/share offer), Black said the latter was less exposed to “competitive ripples”​ stemming from Arla’s added capacity.

But the analyst said Shore Capital believed Muller’s approach should be welcomed by Wiseman shareholders, given pressure on industry margins over the last two years, due to rising diesel, packaging costs and higher farm-gate milk prices.

Arla’s mitigation measures

Asked whether Arla had a message for those local residents and other concerns who opposed the £150m build (on grounds of congestion and noise) which it said would create 700 jobs, the Arla spokeswoman said that mitigation measures aimed to remove, or reduce the dairy’s effect.

Arla had also set up a local liaison group with parish council members and local residents, to ensure they were in regular contact, and would also send out newsletters to local residents to keep them informed, she said.

The company was also keen to recruit more dairy farmers into the ranks of its Arla Foods Milk Partnership (AFMP) to supply milk to the new facility, the spokeswoman added.

“There is also increased investment at other UK facilities, so we’re looking for new dairy farmers to join the partnership generally,”​ she said.


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