Arla and DMK keen to move forward with merger

Particularly in Germany, there are quite a few farmers who are hesitant about whether they will participate in the merger. It is mainly members of DMK who are hesitant, but not only them. The hesitation concerns the question of whether they want to be part of a mega dairy company that will probably be quite far removed from the farmer. Farmers are also concerned about the capital built up in the cooperative. The latter is a particular issue at DMK. In recent years, the cooperative capital has been considerably diluted there due to a fairly massive exodus of members and this had to be supplemented. Arla is financially more solid, but the experiences of the past, combined with the fear that there will be even less say for the individual member in a larger entity, makes dairy farmers hesitant, as we hear and read.

The number of active members of DMK has decreased significantly in recent years. At the end of 2023, there were only 3.800 in Germany and (via DOC Kaas) 600 in the Netherlands. The number of active members has decreased significantly in Germany in particular in recent years. Many of them have switched to other cooperatives or private processors. In the north of Germany, there is still quite a lot to choose from. In addition, Dutch companies are also actively recruiting dairy farmers.

At Arla, a vote on the proposed merger seems to be easier, although some responsible directors will have concerns about the costs of the merger. However, the German vote within Arla will not be decisive. Representatives from various countries will have to make the decision.

For the management of Arla, merging with DMK seems like a good way to gain more market power in Germany, but that is precisely where the retail sector is resisting. The large German supermarkets do not want the Arla/DMK merger to become too powerful on the shelves. For some supermarket chains, an unhindered merger would mean that the new dairy giant would fill up to 30% of the dairy shelves, and that is seen as undesirable.

The chances are therefore high that these players will express their concerns through both the competition authorities and their purchasing policies. Arla's competitors are already noticing that there is avoidance behaviour among retailers.

It is possible that all of this is already a calculated risk and that Arla in particular sees a strengthened market position in Germany after all. In the meantime, the company is not entirely dependent on the German market. In the United Kingdom, the company is investing heavily in order to get more return from the market there. In recent months, it announced the closure of a cream factory in North Yorkshire, but also an increase in production capacity in Lockerbie, Scotland, and the construction of a new large mozzarella factory in Devon, close to the whey factory from Volac that was acquired last year. In this way, Arla is responding to the growing demand for cheese and also gets more money from every litre of milk. There is still a lot to be gained from this on the British market.