Fane Valley, the co-op headquartered in Moira, Co Antrim, recently announced that it was taking a 50% stake in Drummonds, the feed, seed and grain merchants, headquartered in Clonee, Co Meath.

The Irish Farmers Journal explores the development of both businesses and why it makes sense for both Fane Valley and Drummonds to develop a joint venture.

Fane Valley has been around as a farmers’ co-op since 1903 with dairy processing as its main initial core business and subsequently meat processing with the acquisition of Linden Foods and a half share of the Slaney Foods and Irish Country Meats businesses. Alongside these, it operated a range of farm supplies stores and a milling business.

Over the past decade, Fane Valley decided to withdraw first from dairy processing and subsequently large-scale meat processing, with Lakeland taking on the dairy business and the Linden, Slaney and Irish Country Meats moving to ABP following a period of joint ownership.

Fane Valley mill and store, Omagh.

Fane Valley is in a strong financial position, with the accounts for the year ending September 2020 showing an operating profit after tax of £12m (€14.1m), cash in the bank of £24m (€28.2m) and net assets valued at £109m (€128.2m).

Types of business

A key component of Fane Valley’s future business strategy was described by CEO Trevor Lockhart as “being an input supplier to primary agriculture”.

By far the largest part of the business is Fane Valley Feeds, centred on its mill in Omagh, Co Tyrone, with sales of £74.55m (€87.7m) for year ending September 2020. In addition, it has a Co Donegal-based feed company, Smyths Daleside, and its subsidiary, Burkes Shipping, based at Lisahally Port in Co Derry.

It also has 17 farmer supplies stores spread across Northern Ireland and it still has three specialised meat businesses – Hilton Meats in Carrickfergus, Co Antrim; Duncrue Food Processors in Belfast; and Silver Hill Foods in Co Monaghan.

White’s Oats businesses in Co Armagh completed the portfolio prior to the joint venture with Drummonds.

Fane Valley and Drummonds

Given the repositioning of Fane Valley’s core business to supplying primary agriculture inputs alongside operating speciality food businesses, and the fact the company had money to spend, it was no surprise to see it take a stake in Drummonds.

The simplest explanation is that it extends the geographical footprint in which Fane Valley operates

When Lockhart was asked by the Irish Farmers Journal why Drummonds, he replied: “The simplest explanation is that it extends the geographical footprint in which Fane Valley operates.”

He explained that while Fane Valley is currently a Northern Ireland and border counties business, this will extend their reach well down the eastern half of Ireland.

He also pointed out the benefit to the White’s Oats business, currently progressing plans to significantly increase capacity which in turn will require an expanded local supply base for both conventional and organic oats.

Lockhart explained that the Drummonds business has some of the most productive cereal producing lands in the country and this will add to the White’s Oats supply base for native grains.

Fane Valley mill and store, Omagh.

Other synergies between the businesses highlighted by Lockhart include access to the Drummonds cereal seed cleaning facility in Drogheda to replace the Fane Valley facility, where the lease is due to expire, and access to the Drummonds’ research and trial farm in Termonfeckin, Co Louth.

He explained that Fane Valley already has a team of eight agronomists and when these are pooled with the 13 at Drummonds, there will be a very powerful knowledge resource shared between the businesses.

On the issue of brand identities, Lockhart was very clear that Drummonds was a long established brand with a lot of heritage and both companies would very much keep their respective identities while sharing knowledge and expertise.

For example, Fane Valley have a strong presence in farm retail, with 17 stores across Northern Ireland, while Drummonds has six in its catchment area so there is no overlap. Similarly, Drummonds can be a gateway for native grains for the Fane Valley milling business so in every sense the businesses are a natural fit from the Fane Valley perspective.

Drummonds deal offers considerable synergies to both parties

Back in 2009, the Drummonds business was threatened with closure but it was rescued following a joint venture 50:50 purchase by the Freshgrass Group and Liffey Mills.

Drummonds itself was originally a Scottish company founded in 1760. Its business has been based in Clonee, Co Meath, since 1972, where it trades in grain, fertiliser, chemicals and agricultural seeds.

Since then it opened facilities in Ardee, Drogheda, Kells, Knockbridge, Dromone, Lusk, Mullingar, Rathcoffey and Navan. Its core business was the purchase and marketing of a wide range of grain types.

The company operates through a network of branches in north Leinster which act as grain intake assembly points.

It also supplies a comprehensive range of agricultural inputs including fertilisers, agrichemicals and animal feeds and provides a significant agronomy service to farmers.

That joint venture continued for seven years and it was quite successful. However, in November 2016 the Freshgrass Group took control of the business by purchasing the company outright. Management continued as was and the business has continued to perform very well.

During this time, the world was becoming increasingly aware of climate change, carbon emissions, carbon footprinting and sustainability.

This changing landscape was encouraging other businesses to become more accountable to their customers and Northern Ireland farmer-owned co-op Fane Valley began to have discussions with Freshgrass.

The original talks hinged around access to the Drummonds seed business as Drummonds has a significant seed plant in Drogheda.

As the talks continued it became clear that both companies had a lot to offer each other in terms of other potential synergies.

Along with 17 agri stores in NI, Fane Valley has a big feed business as it sells into the intensive NI livestock sectors and customers there are demanding increasing traceability and sustainability verification. It also has a need for seed multiplication for its growers.

Fane Valley also owns the NI oat milling company, White’s Oats, which it acquired in 1990. This business is undergoing significant expansion plans and the Drummonds platform can provide additional supply more easily than from within its NI grower base.

Indeed, Drummonds has long been a supplier of milling oats to the company.

Liam Woulfe, managing director of the Freshgrass Group, said he did not have any intention to sell the company but was open to enhancing the business if tangible opportunities became apparent.

Grain stockpiled at Drummonds, Ardee.

Following further discussions, he acknowledged that considerable potential to add value for both parties through a range of synergies were very achievable.

The recognition of this potential altered Woulfe’s thinking and he entered into a 50:50 joint venture with Fane Valley to help capture these synergies and to add value along the supply chain for all concerned and especially for farmer customers and employees.