Last week’s news that Dawn Meats is to take over Dunbia’s Irish operations this week didn’t come as a great surprise to anyone in the industry or farming circles as negotiations have been ongoing for some time. Nevertheless, the farm organisations have made known their disapproval of the move in what they see as a further blow to competition for finished cattle.

This latest move puts Dawn on to five factories, one behind ABP which has six plus a 50% stake in Slaney, and one ahead of Kepak, with Liffey owning three. In terms of numbers of cattle, it is thought that Dawn will be slightly ahead of ABP when it adds Dunbia, though allocating half of Slaney’s kill to ABP would keep them in front. Anyhow, three-quarters of the Irish cattle kill is handled by these four groups, with almost half the kill handled by ABP and Dawn alone.

Farmer concerns are driven by what they see as a handful of people able to dictate cattle price and in the process exploit beef finishers. There is very little confidence among farmers that meat factories give their farmer suppliers a fair deal.

Butcher shops

A large part of the reason for the lack of farmer confidence in Irish meat factories is driven by an absence of transparency of what happens in the industry after the farm gate. The reality is that the major meat processing groups in Ireland publish little or no financial information about company performance or financing. It may be OK for a small butcher shop, family-owned, to keep its financial affairs to itself, but it isn’t satisfactory for substantial multinational companies, as our big beef processors now are. Dunbia had in recent years been publishing audited accounts for the group, and while this didn’t give much specific information at individual business level, it at least gave an overview of overall financial performance.

The concerns about factory ownership are twofold. Firstly, are the factories excessively profitable at farmers’ expense and secondly an equally valid concern is what if factories, buying millions of euro worth of cattle, aren’t financially strong? Meat processing is usually a low-margin business, but in the absence of robust financial information there is always a risk, however remote, of companies being exposed to high-risk investments, either in Ireland or in less stable parts of the world. If these were in place and went wrong, then it could jeopardise the core business and put the farmer suppliers at risk. Thankfully farmers not getting paid are now a rare occurrence in Ireland but that doesn’t mean it couldn’t happen. Hence the need for more information on our companies.

The lack of industry transparency was recognised last year in an industry taskforce set up by European Commissioner for Agriculture Phil Hogan. This is now being taken forward in the Commission’s work programme but isn’t a matter for DG Agri alone. It is the competition commissioner who ultimately has to drive it. The US and Canada have models that are well worth considering as the basis of any action to get an understanding of the stocks of beef and its market value, with the Chicago Mercantile exchange providing a futures market for livestock.

Ultimately, fewer buyers for cattle could mean less competition. On the other hand, stronger companies should be better able to negotiate with major multinational supermarket and food-service industry buyers. The real issue for farmers is getting a fair deal and not feeling exploited. This is where information and knowledge of what happens after the farmer drops his cattle off at the factory has a role.

How is the new business likely to work?

With Dawn taking over the Irish part of Dunbia’s business, it will simply be a case of Dawn deciding is running the existing Dunbia businesses compatible with their own. It will likely continue to slaughter at Slane as factories tend to bring a cattle pool with them from the surrounding area. Dunbia has a modern cutting plant in Kilbeggan which could either be used to service other Dawn slaughter facilities as well as existing business or indeed it may decide the work done there could be absorbed elsewhere in the Dawn group. No doubt that is a review that will take place soon after the sale is completed, assuming approval by all relevant Competition Authorities.

Joint venture

The UK joint venture will see the Dunbia brand retained, with Dawn’s business absorbed into it. The notable thing about the joint venture is that it isn’t an equal joint venture as Dawn will have the majority interest. With Jim Dobson being designated the CEO and no mention of his brother Jack, who was joint founder and owner of Dunbia, there is a view that he could be using this as an opportunity to cash in his chips and leave the business. Equally, there is no mention of a role for Tony O’Neill, who has been very prominent in the Northern Ireland food industry with Moy Park and laterally Dunbia as well as being chair of the Agri Food Strategy Board.

Dunbia and the Dobson family have long links with associate businesses in Northern Ireland and the Netherlands. The Irish Farmers Journal understands that the Dutch business Shannon Meats will be part of the joint venture, though Dawn also has a business in the Netherlands and we are unclear if this will continue independently. Elmgrove, which handled the byproducts from Dunbia and several other companies, isn’t involved in the deal and will presumably continue to operate independently of the joint venture, as will Linergy, which handles fallen stock and was set up previously as a joint venture between Linden Foods and Dunbia.

Britain

In Britain, Dunbia would be considered to have the edge with listings at several major supermarkets for beef and lamb while Dawn bring Marks & Spencer to the portfolio. The major gap in the retail sector for the new JV is Tesco, which has almost a third of the grocery sale. It wouldn’t be a surprise to see the new group make a pitch for at least some of this business. It is already well connected in the burger business with Dawn in Ireland a key supplier to McDonald’s in Europe and Dunbia a major supplier to OSI, which produces the burgers for McDonald’s in the UK.