Commission raises big doubts over Friesland-Campina merger

By Jess Halliday

- Last updated on GMT

Related tags Dairy European union Milk European commission

An initial investigation of the European Competition Commission
into the proposed merger of dairy cooperatives Friesland Foods and
Campina has raised serious concerns, prompting the launch of an
in-depth investigation.

The two cooperatives, both based in The Netherlands, first announced the idea of merging in December 2007 so as to significantly strengthen their positions in both consumer products in Europe, Asia and Africa, and in ingredients on a worldwide basis. Following a favourable vote by their members in early May they said the joint company, called FrieslandCampina, could be operational by the end of 2008. Today's news from the European Commission could represent a big stumbling block to the plan. As both are operational in the same dairy markets, including milk, cheese and lactose, the commission has said the merger could be at odds with the common market. In addition, the merger could result in supply problems for their competitors. The commission said it is particularly concerned about the impact of the transaction on fresh dairy and cheese markets. It also notes that Friesland and Campina are each others' closest competitors in other markets, like desserts, flavoured drinks and cream. Both have operations in the food ingredients sector. "For industrial products sold to the food processing industry and to pharmaceutical companies (spray-dried emulsions, used in bakery applications, and pharmaceutical lactose, used in the manufacturing of pharmaceuticals), the merger might create a clear market leader and remove a strong alternative supplier,"​ flagged the commission. "At a time of rising food prices, consumers deserve protection from any reduction of competition that runs the risk of pushing prices up in this sector,"​ said competition commissioner Neelie Kroes. "That appears to be a real risk with this proposed merger, and an in-depth investigation is therefore necessary." ​Despite these initial negative overtones, the commission has stressed that the decision to open an in-depth inquiry does not prejudice the result. A decision will be reached within 90 days - that is, before November 24. Dairy fluctuations​The dairy market is presently facing a number of issues that are affecting market conditions. These include re-regulation markets by the EU and the World Trade Organisation, and a global market for dairy products that can fluctuate wildly. The companies say that competition has been hotting-up in the dairy market, both on the regional and the global scene. Moreover, demand for dairy products is increasing in emerging markets, such as India and China, which is having an affect on global consumption volumes."Dairy farmers are increasingly dependent on global developments in the dairy industry,"​ said Kees Wantenaar, chairman of the board of Campina and chairman-designate of Friesland Campina. "In a dynamic and competitive dairy market, they need a strong dairy cooperative. FrieslandCampina will fulfil that role, with its broad product range, its presence in many regions and its capacity to be distinctive and achieve further growth."Ready, steady… ​Since the vote in May, selected teams are understood to have begun working on the full merger of the two companies and preparing for the launch of a new multinational, to be known as FrieslandCampina. Kees Gielen, acting CEO of Campina, stressed that until competition approval is granted and the transaction closes it will be business as usual for both entities. "Friesland Foods and Campina will continue to function as two wholly separate, autonomous companies. As soon as we get a decision from the European Commission, we'll be energetically starting out as a new, single company."​ It is planned that FrieslandCampina would comprise four divisions: Consumer Products Western Europe, Consumer Products International, Cheese & Butter, and Ingredients. The projected annual turnover, based on 2007 figures, is €9.1bn. Between them, the joint forces of 17,000 farmers would supply some 8.3bn kilos of milk. The merger is also dependent on an advice by the works councils of the two companies.

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