Strathroy takes additional 18m-litre liquid contract with Lidl Ireland

Competition in the Irish liquid milk market remains fierce, with Co Tyrone-based Strathroy Dairies consolidating its position as the main supplier to Lidl having taken a contract for an additional 18m litres off co-ops Aurivo and Arrabawn.

While supermarkets will increase and decrease liquid milk contracts all the time with their various suppliers, the news that Strathroy had secured this sort of additional volume from Lidl is seen as significant.

For Aurivo, the loss of the Lidl contract equates to over 10% of its entire liquid milk business

To put it in context, securing an additional 18m litres of contracted liquid milk will mean a 10% to 15% expansion of Strathroy’s liquid milk business in Ireland in just one stroke. For Aurivo, the loss of the Lidl contract equates to over 10% of its entire liquid milk business, while the lost volumes for Arrabawn represents almost 15% of its entire liquid pool.

While both co-ops will find a new home for this displaced liquid milk, it is still a significant volume to lose in one go.

Yes, it is a tight price – it always is, but plastic reduction was a big part of it

IFA president Tim Cullinan said he was shocked to see “aggressive undercutting practices” by some suppliers to gain a slightly bigger share of the static liquid milk market.

Speaking to the Irish Farmers Journal, Strathroy director Ruairi Cunningham argued that securing the new business was not simply about price.

“Yes, it is a tight price – it always is, but plastic reduction was a big part of it, and we knew if we could match the others on price, we would be in the driving seat,” he said.

As a specialist liquid milk supplier, Strathroy has led the way in plastic packaging, with it being the first company in Ireland to offer milk in plastic cartons. It currently produces its own two- and three-litre cartons in-house, and new technology and redesigns mean they are now using 20% less plastic than previously.

That fits well with a Lidl target announced last year that it would achieve a 20% reduction in plastic across its business by 2022.

Aggrieved

However, Aurivo will feel especially aggrieved to have lost out on such a large volume of its supply contract with Lidl, having just recently announced a partnership with the German discounter to supply it with one-litre packs of milk under its Coolree Creamery own-brand range, where the carton is made from fully renewable, bio-based packaging.

The fiercely contested nature of the liquid milk sector has led to significant consolidation over the years

Lidl said Aurivo’s new packaging innovation would save the equivalent of 160t of CO2 annually and have a 31% lower carbon footprint compared to standard packaging.

The fiercely contested nature of the liquid milk sector has led to significant consolidation over the years. Just four main players remain in the sector in Ireland, namely Glanbia, Strathroy, Aurivo and Arrabawn, while in Northern Ireland Dale Farm has a significant share of the liquid milk market, supplying most big retailers. It also produces liquid milk but at much smaller volumes than the big players.

The big concern in the liquid milk industry this week is what signal the Lidl-Strathroy deal will send to other retailers? And will it set a new price level for milk processors to meet? If it does, it could mean even further rationalisation in the Irish liquid milk sector to just a handful of specialists as already razor-thin margins will narrow even further.