Barely three months after the announced merger between FrieslandCampina and Milcobel, the next deal is in the making: dairy cooperatives Arla and DMK Group are also merging. A merger that is at least as surprising, but at the same time not illogical if you look at the challenges for both companies in the shrinking European market. The merger creates a rock-solid dairy stronghold. We list five conclusions.
FrieslandCampina and Arla informally explored the possibility of a merger three years ago, although this was vehemently denied by both camps at the time. Now it appears that both dairy giants have found another partner. FrieslandCampina will continue with Milcobel - as has been known for some time. Arla has in DMK found a new love.
1. Europe's largest dairy cooperative
With a turnover of around €19 billion and a milk lake of 19 billion kilos, Arla will soon become by far the largest dairy cooperative in Europe, provided that the regulators do not find that parts should be divested due to too much market dominance. In recent years, Arla and FrieslandCampina have exchanged another penny in the annual dairy ranking of Rabobank, but there will soon be no more discussion about that. Only the listed companies Danone and Nestlé will soon be larger in terms of turnover in Europe, but smaller in terms of milk volume. The American Dairy Farmers of America had a turnover of more than €2023 billion in 20 and sits on a milk pool of almost 30 billion kilos and will therefore remain the largest dairy cooperative in the world.
2. Arla parent party
It is clear that Arla is the superior party in this merger. With a milk pool that is two and a half times as large, Arla carries more weight than DMK, which sees the name disappear from the factory facades. Arla is also allowed to supply the CEO and chairman of the cooperative and will also keep the head office in Denmark. The need for a merger was also greater at DMK than at Arla. At DMK, the milk volume is under more pressure than at Arla, as many German members have cancelled their membership in recent years and left for other processors. In addition, DMK's profitability has been somewhat disappointing in recent years.
| Milk price DOC Cheese higher than Arla in recent years |
| Although Arla is less dependent on the bulk markets, this does not mean that it pays a better milk price. Between 2020 and 2024, DOC Kaas paid an average of €42,88 per 100 kilos. In the same period, Arla's average milk price in the Netherlands was €42,76 per 100 kilos. However, Arla generally pays a more generous additional payment. At DOC Kaas, this was €2024 per 1,08 kilos in 100, while Arla paid €2,20 afterwards. |
3. DMK/DOC milk price becomes less bulk sensitive
The idea is that by merging each other's milk and dairy brands, synergy benefits will arise. Or is the merger mainly intended to better absorb the expected shrinkage of the European milk pool? The idea is in any case to use the production apparatus more efficiently, which should benefit the milk price. Arla is strong in branded dairy (with brands such as Lurpak, Arla and Castello), while DMK is a powerful player in private label and industrial ingredients. The milk price of DOC/DMK still relies heavily on the bulk markets, but this will be less the case after the merger. The milk price of the largest European milk cooperative in the making will also become an important indicator as a reference in the market.
4. Importance of cooperative DOC Cheese diluted
Looking at the Dutch market in particular, the relationships between the two companies are exactly the opposite of the overall picture. With a few dozen member dairy farmers, Arla is a small player in our country with little milk of its own. DOC Kaas has between 600 and 700 members and is therefore much larger. DOC Kaas has a 10% stake in the dairy company DMK. Inquiries with DOC Kaas and DMK this afternoon did not provide any insight into what will happen to this when the merger becomes a fact. Given that DMK will in fact be absorbed into Arla, DOC Kaas's stake in the merger company will logically become smaller.
5. Corporate cultures are well compatible
Finally, the merger on paper will result in a rock-solid European dairy stronghold. Both cooperatives are listed as separate entities. The cultural backgrounds of both companies reinforce each other and also seem to be well-compatible, especially since both companies have been working together since 2011 via the joint venture ArNoCo. This is a risk for underestimation. After all, mergers are by definition challenging and not without risk, especially when it comes to maintaining the corporate culture.