Rabobank’s recently updated Global Dairy Top 20 makes for interesting reading. While turnover at the world’s largest dairy companies jumped more than 20% in euro terms, the higher revenues were quickly absorbed by, what Rabobank calls, “an exploding cost base.”

Winners and losers

As the global rankings are based on turnover rather than profitability, moving up and down the positions is normally a function of merger and acquisition activity, and favourable currency exchange rate movements. Last year particularly was a good one to be exposed to the US dollar, as that currency performed well, putting non-US dairy companies at a disadvantage for this list.

Glanbia derives the majority of its revenue from sales in the US and even started to report earnings in dollars this year. The strong dollar “contributed” to Glanbia’s entry to the list, Rabobank said.

One of the biggest fallers on the list was New Zealand’s Fonterra, which dropped three places from sixth to ninth. That was driven by both a weaker local currency and a decision by the co-op to continue its disposal of non-core assets, particularly in South America.

Disposals were also the driver for Denmark’s Arla moving ahead of Dutch co-op FrieslandCampina. While both operations moved higher, Arla’s expanded interest in dairy ingredients gave it the edge over FrieslandCampina, which is concentrating on strategic disposals and consolidation.

France’s Lactalis, entirely owned by the multi-billionaire Besnier family, retains its position at number one, as the processor continued its acquisition spree – although at a reduced pace from some of the mammoth deals of recent years, such as the purchase of Kraft Heinz in 2021.

Looking ahead, 2023 is unlikely to see huge changes to the rankings. Yes, the turnover levels across the dairy industry are being hit hard, but that factor is the same for every company. Currency movements have been relatively benign so far this year, but, more importantly, the pace of mergers and acquisitions has slowed rapidly.

The cost of issuing bonds soared in both 2022 and 2023, as interest rates were pushed higher across the world by central banks. With revenues (and margins) under pressure, the cost-benefit analysis for large purchases is unlikely to add up for even the richest companies.

Without those takeovers and disposals, everyone will more or less sit where they already are for another year.

Glanbia: an international company, based in Ireland

Glanbia’s entry into the global top 20 dairy companies is probably little much more than another feather in Siobhán Talbot’s cap, before she retires from the company at the end of this year. However, the reason for its entry to the list – its huge reliance on the US market – can also lead to fresh questions for the incoming CEO.

Key among those is whether Glanbia is still really an Irish company. We often hear about nameplate companies who established a head office in Ireland in order to take advantage of the generous corporate tax rate here, while never really having much operation in this country. These days, the minimum bar for such tax residency is that central management and control of the company are exercised from Ireland.

It is notable that in 2023 Glanbia, a company which has its foundations deep in the Irish countryside, only meets the minimum criteria for being an Irish resident company. The sale of Glanbia Cheese this year marked the end of any production in this country, leaving Glanbia as a company based here, but with its operations overseas. Further compounding the reality that Glanbia is a global company with an Irish tax base, is the decision to change the company’s reporting currency from euros to US dollars.

All of which means the continued questions over where Glanbia’s shares are listed will only get louder. A company, reporting in dollars and deriving the majority of its revenues in the US, but having its primary listing in Dublin makes little sense, and may even be at a cost to current shareholders.

The deep liquidity and (possible) valuation improvements possible in US markets should be tempting for the company. Davy stockbrokers recently said the company has “undemanding valuation metrics” (meaning its stock could be viewed as cheap) in its Dublin listing. US listed companies generally trade at higher multiples than those in Dublin, which means that if Glanbia is cheap in Dublin, it would be very cheap in New York.

When the Irish Farmers Journal asked Talbot last month about the possibility of moving the primary listing across the Atlantic, she said there were no plans for a move at this time. With Talbot’s term ending this year, incoming CEO Hugh McGuire will have to be a bit more specific about his plans for the company’s future listing.