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£320 Million Capital Investment by UK Dairy Processors

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£320 Million Capital Investment by UK Dairy Processors

April 10
15:44 2010

Although 2009 was a tough year for UK dairy processors, the market fundamentals remain sound and reflecting this confidence in the long-term outlook, capital investment projects worth over £320 million are currently ongoing or just recently completed within the industry.

Encompassing liquid milk, cheese, yoghurts and chilled desserts, yellow fats (butter, spreads and margarine) and cream, the milk and dairy products market in the UK is worth over £7 billion. The UK dairy industry is dominated by three big processors – Arla Foods UK, Dairy Crest and Robert Wiseman Dairies – along with two large, vertically integrated farmer-owned co-operatives – Milk Link and First Milk. A third co-operative, Dairy Farmers of Britain, collapsed in June 2009.

These leading players are broadly based dairy processors active across a number of market sectors, with the exception of Robert Wiseman Dairies, which specialises in liquid milk and cream. The ‘top five’ are currently implementing or have just finished capital expenditure programmes with a combined worth in excess of £250 million.

Other smaller processors are also investing in expanding capacity or to improve efficiency, with projects valued at £69 million.

World Leading

Arla Foods is planning to invest in building a new one billion litres liquid milk dairy located on the outskirts of London as part of its UK growth strategy. The new facility is due to be operational in 2012.

“Incorporating the most sustainable building techniques the dairy will be the largest, most efficient and environmentally advanced in the world,” says

Peter Lauritzen, chief executive of Arla Foods UK.

 “We already have an industry leading site at Stourton, in Leeds, but our new, cutting edge, facility in London will be world leading and take dairy processing into the next generation.”

Arla Foods has also recently invested £70 million in expanding its UK flagship dairy at Stourton in Leeds, having already spent £100 million at the site, which processes milk for the major supermarkets as well as leading milk brand Cravendale. The additional investment at Stourton allows the site to process a range of fresh dairy products, including fresh cream and creme fraiche. It also permits Arla Foods to manufacture cottage cheese for the first time in the UK.

Improving Efficiency

Dairy Crest is to step up capital investment in its dairies division in order to improve the efficiency and infrastructure of its liquid milk operations and support its offering to key customers. The UK dairy group has earmarked £75 million over the next three financial years in addition to its normal replacement capital expenditure, to be funded from cash generated by the business.

“The increased investment in our liquid milk dairies will allow us to drive further cost efficiencies, remain competitive and maintain high levels of service to our customers,” says Mark Allen, chief executive of Dairy Crest.

Investment until now had been focused on the cheese business, where following the opening of the new Nuneaton packing plant, Dairy Crest has a world-class supply chain supporting its Cathedral City brand. Dairy Crest has also continued to invest in other parts of the business; for example, at Foston where a modern greenfield dairy has been created, readily capable of further expansion.

Glasgow-based Robert Wiseman Dairies is now proceeding with the final phase of expenditure at its new Bridgwater dairy to take the overall annual capacity at the site to 500 million litres at a cost of £10 million. The additional capacity when up and running later in the year will further improve operating costs and efficiencies at the site, as well as permit the growth in sales the company expects over the next few years. Last November, Wiseman opened a new £14 million depot at Amesbury which will be used to serve the south east of England more effectively. See ‘Sustained Capital Investment Pays Dividends For Robert Wiseman Dairies’ in this issue.

Dairy Co-operatives

Headed by new chief executive Kate Allum, dairy farmers co-operative First Milk is building a new £10 million state-of-the-art creamery on the Mull of Kintyre peninsula in Scotland. Milk Link, the UK’s other major dairy farmers co-operative and the country’s largest cheese processor, is investing about £5 million to expand and upgrade its dairy at Crediton. The project is part of the strategic refocusing of Milk Link’s long life milk and cream business, which entails consolidating all milk production at the Crediton dairy and closure of the smaller Kirkcudbright site in Scotland.

Regional Investment

Kate Allum, chief executive of First Milk.

The UK’s largest Stilton cheese producer, Leicestershire-based Long Clawson Dairy, is investing about £4 million, including grant aid from the East Midlands Development Agency, to expand production capacity by 25%. Long Clawson currently produces 6,700 tonnes of cheese a year and exports over 1,000 tonnes to 36 countries worldwide.

“The expansion will enable us to fulfill the growing demand for Stilton worldwide and to develop new products, penetrate new markets and create new jobs locally as well as enabling us to make significant savings on our water and electricity resources,” points out Martin Taylor, chief executive of Long Clawson Dairy.

Backed by a £5.7 million grant from the South West Regional Development Agency, Cornwall-based Trewithen Dairy is increasing its production by 80% from 25 million to 44 million litres of milk a year. The £11.5 million development programme will include an expansion of production capacity for fresh milk, clotted cream and butter milk, along with improved infrastructure, investment in new equipment and purpose-built new offices and staff facilities to replace the temporary accommodation.

Dairy Ingredients

Specialist dairy ingredients supplier Meadow Foods is investing £2 million to expand manufacturing capacity and improve efficiency at its site at Holme on Spalding Moor in Yorkshire. Meadow Foods has an annual turnover of £250m and handles 420m litres of milk and over 80,000 tonnes of cream each year from a network of 400 farmers nationwide.

It recently acquired Nene Valley, a subsidiary of the failed Dairy Farmers of Britain and a leading processor of packaged cream for the food ingredients market, for an undisclosed sum. “Our strategy is to develop our business to provide long term security of supply of critical dairy ingredients to the major food manufacturers in the UK,” says Simon Chantler, executive chairman of Meadow Foods.

Yoghurt Market

Having recently completed a new £60 million dairy at Telford in Shropshire and launched its first British yoghurt brand, NOM Dairy UK is .building a new £5 million refrigerated warehouse at the site. Part of NOM, the leading dairy products company in Austria, NOM Dairy UK was established in 2008.

According to David Potts, chief executive of NOM Dairy UK, over half of the £1 billion UK yoghurt market is supplied by imported product, which provides a massive opportunity for local supply.

Largest Ever Investment in Northern Ireland

In Northern Ireland, Dale Farm, which is owned by co-operative United Dairy Farmers, is investing £39 million across its three sites in support of its rapidly growing sales in consumer products and specialist ingredients. The expansion programme is the largest ever investment in the Northern Ireland dairy sector by a single company.

On the island of Jersey, work is underway on a new £5 million purpose built dairy at Trinity. Capable of processing all of the island’s milk, the new dairy will increase production and efficiency and help in the development of export sales for Jersey Dairy, the island’s sole dairy processor. Jersey Dairy manufactures a range of dairy products including milk, butter, cream, creme fraiche, yoghurt and ice cream. See ‘Work Starts on New Jersey Dairy’ in Food & Drink Business Europe, September 2009 issue.

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