The end of EU dairy quotas in 2015 is already shaking up market

The end of EU dairy quotas in 2015 is already shaking up market

The spectre of the end of dairy quotas in the EU is prodding dairy processors across the continent to combine.

Earlier this month, we reported on the "draft agreement" between French dairy groups Sodiaal and Entremont Alliance to merge.

This week, we have seen two more French dairy companies, co-ops Glac and Eurial, decide to merge to create what would be France's second-largest dairy co-operative, behind Sodiaal.

However, consolidation is not just limited to France. In Austria, dairy processors Berglandmilch and Tirol Milch are planning to join forces to create that country's largest dairy firm.

Amid all this, there is the ongoing speculation surrounding the intentions of German dairy groups Nordmilch and Humana Milchunion. Reports in Germany earlier this month said a merger between the two companies had been delayed, although both sides plan to put the proposal before their members later in the autumn.

There has been much speculation over consolidation in the EU dairy sector in recent years and particularly since the merger between Dutch groups Friesland Foods in Campina in late 2008.

However, the economic downturn dried up the finance needed to drive more deals and led to companies focusing inwards rather than out. Nevertheless, consolidation in dairy is seen as inevitable.

With the EU scrapping quotas in five years time, Europe's dairy processors will be able to produce more to export to the world's emerging markets - and some companies see increased scale as vital in serving those markets.

That was certainly the case for the likes of Friesland Foods and Campina and is also a key factor for Sodiaal.

The company has an international presence through its Candia brand, its stake in yoghurt maker Yoplait and milk powder business Regilait.

However, a deal with Entremont will give the company the scale to build its international business and the raw product to serve export markets.

That said, not every company involved in the wave of consolidation in EU dairy desires international expansion.

Some, like Austrian processors Berglandmilch and Tirol Milch, see a merger as a way of creating a stronger business in what will, by 2015, an EU dairy sector without quotas - but with the possibility of lower milk prices.

A spokesman for Berglandmilch said the farmer-members of both Austrian co-operatives had instigated the plans for a merger.

"They are interested in a company that will survive in economic times that will get rougher," the spokesman said. "We are facing 2015. Then, the milk market in Europe will be almost without any regulation."

With consolidation taking place or on the cards in France, Austria and Germany, will we see similar moves in the UK?

There have long been rumours about the future of UK co-ops First Milk and Milk Link.

In October 2007, the two sides agreed on a proposal to merge - only for the plans to be abandoned four months later.

With a new boss at First Milk, could both sides return to the table - if not now but as 2015 approaches?