The proposal for ABP to acquire the Allen family’s 50% of shares in Slaney and operate the company as a joint venture with the other partner, Linden Foods, has now been presented to the European Commission’s directorate general (DG) for competition.
An IFA-commissioned report on the proposed deal concluded that would “significantly lessen competition” for beef cattle in Ireland. IFA president Joe Healy said this Friday that the association had “requested DG Competition to formally involve the Competition and Consumer Commission (CCPC) in Ireland and the Competition and Markets Authority (CMA) in the UK to ensure all competition issues raised are fully investigated and addressed”.
The Irish Farmers Journal investigates the background to the deal and what it might mean for Irish farmers.
Slaney’s beginnings
Slaney Foods has a cattle-processing abattoir in Enniscorthy, Co Wexford, and lamb-processing facilities in Navan, Co Meath, Bunclody, Co Wexford, and Bruges, Belgium.
The company was established by the Allen family at the Enniscorthy site in the early 1970s, with lamb processing the main focus. In the era before Ireland joined the then European Economic Community (EEC), the company benefited from the free trade agreement on lambs secured by the Irish Government with France. Along with Dublin Meat Packers, huge numbers were shipped to France, with the Rungis market in Paris the main destination.
When Ireland joined the EEC in 1973, beef processing took off, with cattle bought, processed and stored in intervention, an EEC market support for beef that bought beef when the market fell below a certain level and sold it when markets were stronger. There was also an aid to private storage scheme (APS), which supported companies financially to store product at times of peak cattle supply.
Enter Linden Foods
The nature of the Slaney business remained similar up to the end of the century. However, after the McSharry CAP reform of 1992 when EU market support switched to direct payments to farmers and away from intervening in the beef market, the beef processing business also had to change.
The BSE crisis in 1996 brought the beef export ban on the UK, which meant Northern Ireland companies could no longer service lucrative markets developed successfully in mainland Europe. Foremost of these was the branded Greenfields beef into Albert Heijn in Holland.
Linden Foods was a merger between Granville Meats, Moy Meats and Milltown Meats within the Fane Valley Co-op. The Waugh family, owners of Milltown Meats, retained a minority 12% share. They were among the leading beef exporters from Northern Ireland, with 70% of their total sales exported, with the lucrative Albert Heijn supermarket group in Holland selling Greenfields Irish beef as part of its portfolio.
Pictured: Northern Ireland First Minister Arlene Foster, with (from left) Gerry Maguire, managing director Linden Foods, and Trevor Lockhart, chair, Linden Foods. Photo: Aaron McCracken
Thus Linden, a company with lots of good business that it couldn’t supply because of the export ban, linked up with Slaney Meats, a company that was looking to develop commercial markets to replace the dwindling intervention and APS business. This perfect fit meant that the Slaney facilities could focus on servicing mainland European markets. Meanwhile, in Northern Ireland, Linden switched its focus to developing the UK market, with Marks & Spencer becoming its flagship customer alongside OSI, the manufacturer of McDonald’s burgers.
Developing the business
The new north-south venture between Linden and Slaney acquired Irish Country Meats’s lamb processing facilities in Navan and Camolin (photo below) from Glanbia in the year 2000. Slaney Meats then rebranded as Slaney Foods. In 2011, it acquired a further lamb processing, packing and distribution business, Lonhienne, in Liege, Belgium. This completed its portfolio of businesses.
The individual businesses retained their identity under the umbrella Linden Food Group, which meant that Linden Foods continued in Northern Ireland, owned by Fane Valley with the Waugh family retaining a minority shareholding. Slaney Foods, ICM and Lonhienne were each owned 50% by Linden Food Group and the remaining 50% by the Allen family. The company invested heavily in upgrading its facilities across its locations over the past decade and are now considered to have among the best in the industry.
Why sell?
Slaney Foods has been a family-owned business, with the Allen family continuing to retain 50% ownership. Bert Allen has been the public face of the company for almost five decades and the decision to retire from the meat business is not without logic. He is part of the generation that created the modern Irish meat processing industry, but, among the wider public, his sons Bertram and Harry now have the bigger profile thanks to their showjumping successes. They are based in Germany, where Bert Allen is known to have considerable interests in the renewable energy business and property.
Surprising twist
While his decision to sell may not be that great a surprise, the buyer - ABP - certainly is. Ordinarily, we might expect that the Fane Valley Co-op would acquire Allen’s share of the company through its Linden Food Group business. Its choice not to do so indicates that it is comfortable working with an outside company and a major competitor on both sides of the border.
This decision tells us much about the ongoing development of the meat processing industry and its markets. The original Linden-Slaney venture was to exploit the then lucrative mainland European beef markets. However, in the past few years, these have been sluggish, with the British retail and fast food market being the main show in Europe. Slaney Foods no longer had the lucrative beef customers and while Linden has Marks & Spencer, it doesn’t provide the volume that the major UK retailers do.
Global portfolio
ABP, on the other hand, supplies all the major UK retailers, including the discounters, and has a global portfolio of customers that is among the best in the industry. The company’s utilisation of offal and byproducts is also considered among the best and its recycling business interests have made ABP a carbon-neutral company. This knowledge and expertise, combined with the excellent Slaney facilities, create an opportunity that would have been difficult for Linden to deliver alone.
Linden choosing not to go solo also tells us much about the modern meat processing business and how difficult it is for a medium-sized company to prosper in this low-margin industry. It highlights how difficult it is to operate outside the UK retail business, whereas a decade ago it was possible to work with a spread of French, Dutch and Italian customers.
There is a sort of similarity with the UK motor industry and the example of Rover cars, a flagship company until it folded over a decade ago. It was described as too small to compete with the global giants such as Ford or Volkswagen, yet too big to be a niche player. The Irish and UK meat industry is now dominated by large groups such as ABP, Dawn, Dunbia, Kepak, with Foyle and Liffey also acquiring multiple sites in recent years.
What each side brings to the party
It is clear that the new joint venture is, in many ways, a second marriage of convenience. Originally, it was Linden’s customer portfolio for beef that met the perfect match in Slaney’s production facilities. This time it is Linden that needs its customer portfolio strengthened, which ABP will do in spades. The Slaney facilities are top notch and any potential supermarket customer will be impressed.
Then there is the sheep side of the business. Slaney Foods and Irish Country Meats plants (photo below) have long been regarded as being at the forefront of adding value to lambs in Ireland. Add to that the fact that they acquired Lonhienne, the leading lamb-processing business in Belgium, and they have a superb production and distribution network for customers in Ireland, Britain and Northern Europe.
This is an area where ABP will gain from Slaney Foods: while Larry Goodman’s group has its own lamb businesses, beef is regarded as the dominant species in ABP.
Implications for Irish farmers
Irish farmer representatives have expressed concerns about the loss of competition from industry consolidation. This took the form of a major farmer protest at the Slaney factory and last week’s publication by the IFA of a report that suggested approval of the deal would seriously weaken competition for cattle, particularly prime in-spec steers and heifers in south Leinster. The IFA was reflecting real farmer concern and the independent report substantiated this in a scientific manner.
Yet a factory at every crossroads does not guarantee competition. It can in fact cause a depression of farmgate prices if a large factory is not operating to full capacity. A strong consolidated processing sector has potential to actually deliver a better deal for farmers. The greatest curse of recent years has been price volatility, with the farmer buying stores to finish or selling weanlings at the mercy of where the market is on the day.
If processors are consolidated, they are in a stronger position to negotiate with the major British retailers and less likely to be attacked at the selling end by independent companies looking to undercut the business. If processor power is properly used, it has the potential to create more market stability.
The problem is lack of farmer confidence in meat factories, and this confidence is something that processors have to earn. If the privately-owned meat-processing groups had the level of transparency of the dairy co-ops or indeed a modern PLC, there would be a lot less mystery surrounding the meat-processing industry and greater farmer confidence would follow.
What will happen now?
The proposed deal has gone to DG Competition in Brussels on 2 September and a report on its phase one investigation is expected by 7 October. Nine in 10 applications are resolved in this phase, so ABP will be optimistic that it has its case made. Should issues arise in this phase, a deeper investigation follows within the next three months.
If the deal is cleared in Brussels, it will be interesting to observe whether the Linden-ABP marriage is a long-term mutually beneficial relationship like the previous one was for the past 15 years. Linden has demonstrated its ability to operate a partnership and ABP has also built strategic alliances with external partners when it suited its overall business.
Yet there is a nagging question: will ABP want to take the Linden share of the business as well at some point in future? Fane Valley has recently merged its milk business with Lakeland and has demonstrated a willingness to divest from a sector when it strategically suits.
Further mergers?
There is also the question of the future direction of meat processing. Since the horsemeat scandal, product integrity has become paramount in the industry. At the time, blue-chip PLC retailers and food companies were badly exposed at how little they know about the supply chain of their meat offerings. Much work has been done since to put that right. The need for retailers to have a bullet-proof supply chain has led them to source from more integrated processing businesses. The Slaney-ABP venture will reduce ABP’s need to source outside its own companies, and it is easy to visualise further mergers and acquisitions.
Even the large groups are not beyond being targeted by the major global players. Last year, JBS, the world’s biggest meat processor, acquired the Moy Park poultry business in Northern Ireland in a €1.3bn deal. This marks a major venture into Europe, where JBS until then had a single beef business in Italy. JBS has several businesses in the Americas. Backed by Brazilian state banks, it has been on the acquisition trail for several years now, spending over €6bn. Its recent decision to move its global headquarters to Ireland has led to speculation that it may target one of Ireland’s major meat-processing groups.
If it is cleared to go ahead, ABP-Slaney is unlikely to be the last change in ownership in the Irish meat industry.
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