IDB deal should help Britain’s cheese market

British industry commentator Chris Walkland assesses last week’s agreement between the Irish Dairy Board’s Adams Foods subsidiary and British co-op First Milk

As befits all announcements of ‘big deals’ the Adams Foods-First Milk deal had the usual gamut of clichés and promises. There would be ‘strong benefits and platforms’. It would ‘complement best in class capabilities’; play ‘a key role in sustainability of the cheese sector’ and (inevitably) would ‘add value’.

For both companies it would ‘guarantee existing and prospective retail, foodservice and wholesale customers a secure, efficient and traceable supply of high quality British and Irish hard cheese’. But is the deal really as good as the PR praise?

Some commentators were quick to point out the irony of the partnership, given that just over six months ago, First Milk’s then chairman made a sideswipe at southern Irish cheese importers for causing major problems on the British market by importing cheap cheese. The comments were hastily retracted, but it hasn’t helped the positioning of the deal as one that has been a long time in the planning between allies.

That aside, though, the deal looks, on the surface, to be a pretty good and logical one – for First Milk, Adams, British and Irish dairy farmers, and for both countries’ mutual cheese industries. There are, as the PR says, many benefits.

It definitely should be good news for First Milk, which is increasingly under pressure after the Arla-Milk Link deal last year, after posting another set of uninspiring financial accounts this year, and with a pension-fund issue to deal with. It needs money to invest in its two quite old but still capable cheese plants, and the deal will give them it.

It also needed to do something to insulate itself from a possible influx of Irish cheese post 2015 when quotas are removed and Irish milk production increases in line with the Food Harvest 2020 plans.

The Arla-Milk Link deal insulated Milk Link’s farmers, and this deal should do the same for First Milk.

Above all, perhaps, the deal should calm those who were proclaiming that First Milk had to do some sort of a deal with someone, especially after the recent loss of its flagship ASDA supermarket contract.

First Milk was running out of options, they say, and this is probably as good a move as it might have made, although why it didn’t try and forge some sort of a relationship with major farmer co-operative United Dairy Farmers in Northern Ireland is a bit of a mystery.

The Adams deal will also allow First Milk to focus on, and invest more in, primary cheese manufacturing, leaving Adams to focus on what it is good at, which is packing and marketing. However, we won’t know how good a deal it is for First Milk until we know how its milk price compares in a year or so (and we’ll probably never know how much money it received in the deal). The two firms talk about a ‘competitive milk price’.

Away from the farmgate, the deal is also good for the IDB’s Adams Foods as it gives it access to more British manufactured cheese which it can pack at its well-invested packing plant at Leek. Retailers here want to source British-made cheese and Adams needed to get its hands on more to deliver its strategic aims. The deal delivers on this goal, increases its efficiency and turnover from £350m to £500m and should maximise the return from Leek.

Adams is already one of the major players in the British cheese market, packing and selling cheese from many of Britain’s manufacturers. The PR says the deal ‘will reinforce its position as a leading supplier of both British and Irish cheese in Britian and build upon its existing supply relationships with British cheese makers such as Parkham Farms and South Caernarfon Creameries’. It’s hard to argue with that comment. This does tee-up Adams nicely to move its business forward.

And there are undoubted benefits for the rest of the industry too. That’s because there are currently four main own-label cheese manufacturers and packers in Britain – Arla, Adams, First Milk and United Dairy Farm’s Dale Farm. The First Milk-Adams deal will mean four becomes three and this will eliminate excess capacity, take out cost and facilitate a more streamlined sector. For those reasons too the deal has to be welcomed.