Two of Ireland’s largest co-operatives could be

laying the groundwork for a full merger after joining forces to establish two separate cross-Border joint ventures centred on feed manufacturing and dairy production.

Cavan-based Lakeland Dairies, the State's second-largest co-op, is teaming up with Co Down-headquartered Fane Valley to set-up the new businesses, which the two hope will benefit from economies of scale.

Both societies said that outside of the joint ventures they will continue to operate on an independent basis, but neither ruled out a merger at some point.

Lakeland chief executive Michael Hanley said the establishment of the joint ventures would create further value and benefits for the producers and customers of both co-operatives. "This makes a lot of sense for both businesses. It gives scale to two significant businesses while also providing massive credibility to customers across the world," he said.

Asked about the likelihood of a full merger, Mr Hanley said: “It’s a possibility. The key area which will drive efficiencies is the significant overlaps on dairy and agribusiness. In terms of the rest of the business there’s less of an overlap and therefore less efficiencies to be gained so let’s see what comes.”

Joint ventures

Following approval of the new plan by the respective boards, two separate joint venture companies will be established which will have combined annual revenues of €845 million.

The first joint venture involves a merger and pooling of the societies’ feed manufacturing sales and stores activities into an agribusiness company to be managed by Fane Valley. Lakeland Dairies will be a partner and shareholder in the venture and will be represented at board level.

Fane Valley is the second-largest feed manufacturer in the North with an annual animal feed manufacturing capacity of 310,000 tonnes. It is also the largest retail distributor of animal feed and farm supplies in Northern Ireland. Lakeland has manufacturing capacity of 190,000 tonnes.

The projected annual revenues of the agribusiness joint venture is forecast to be about €175 million.

The second joint venture to be established will be set up through a merger and pooling of the co-ops’ dairy processing activities and operations into a new company. This will be managed by Lakeland with Fane Valley as a partner and shareholder.

The venture, which is expected to have annual revenues of about €670 million, will process more than 1 billion litres of milk each year with a total milk powder output of more than 160,000 tonnes per annum.

The two co-ops currently procure a combined 580 million litres of milk each year for processing in the North. Lakeland collects and processes more than 800 million litres of milk in Ireland.

It also manufactures more than 90,000 tonnes of milk powder a year. This figure is expected to rise to 130,000 tonnes following the completion of a new €36 million dryer, which is being built at its Bailieborough facility.

Market volatility

Mr Hanley said the end of a six-year, China-driven boom in milk prices would not affect plans. “There is always volatility in the dairy market. In the medium- and long-term we’re very optimistic as customers are looking for more products from us and we see growth in dairy over the coming years.

“The business is under pressure today from market demand with supplies exceeding demand but down the road, dairy has always outperformed all other farm enterprises and we see a significant demand from across the world,” he said.