Analyst: Arla’s super dairy not a gamechanger

By Elaine Watson

- Last updated on GMT

Related tags Dairy crest Supermarket Arla foods Arla foods uk Arla

Analyst: Arla’s super dairy not a gamechanger
Arla’s proposed 1bn-litre ‘super dairy’ in Greater London will shake up the UK liquid milk market but is unlikely to alter radically the balance of power in the trade, according to one analyst.

In a 33-page note on Dairy Crest, Shore Capital analyst Clive Black said that on the face of it, in a market that is broadly balanced, the “prospect of a 1bn litre dairy​ [which Arla announced last November] may be the cause of consternation and worry”.

However, the net increase in capacity would in fact prove minimal given that Arla was likely to close plants in Ashby, Hatfield Peverel and Oakthorpe as its new dairy came on-stream, and would effectively be replacing existing capacity, he claimed.

“The headline 1bn-litre figure is not necessarily as bad as it seems. Should the plant be built we believe that Arla will close three plants into the new one.”

Meanwhile, it did not necessarily follow that Dairy Crest – which has older kit than rival Robert Wiseman, but was investing​ £75m in upgrading it - would be the biggest loser in any reshuffling of supermarket milk contracts in the coming years, he claimed.

In the short-term, all eyes were on Asda, he said, with “conspiracy theorists” ​suggesting that its recent move to rationalise its milk supply base was an “indication that it may be seeking to introduce some additional suppliers for its own-label milk ​[Arla is currently Asda’s sole milk supplier]”.

He added: “Even if Wiseman does gain Asda business over Dairy Crest, which is not a given, it opens up opportunities for Dairy Crest given that Wiseman cannot gain all of the prevailing volume in the market.”

Ultimately, all this was “game theory”, ​he accepted. “But the fact remains that the bulk of milk in British supermarkets will remain with the existing suppliers, even with a new Arla superdairy.”

Will Wiseman build another dairy after Bridgwater?

What wasn’t clear was what Wiseman planned to do after its new dairy in Bridgwater was full, said Black (a programme to take capacity at Bridgwater up to 500m litres is due for completion in November, taking Wiseman’s UK milk processing capacity to 2bn litres).

“We would be surprised if a further dairy in Southern England was not making its way onto Wiseman’s strategic agenda though; it is probably already there.

“We do believe that it is possible that a further 250-500m-litre dairy could be operating though by say 2015.”

Wiseman said taking Bridgwater to 500m litres would create “considerable headroom for continuing our growth” ​and while it had no plans to build another dairy on this scale, it would “never rule anything out”.

Arla super dairy “still on schedule”

Arla Foods told that it was still “processing and finalising land searches” ​for its new super dairy, but insisted it was “still on schedule” ​to become operational in 2012.

In November, Arla Foods UK chief executive Peter Lauritzen said detailed plans would be presented to the board in “early 2010”​. However, the firm has yet to update the market.

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