The Big Cheese
Recent transactions have made Agropur Cooperative one of North America’s top five cheese and ingredients processors
By Mark Cardwell
Serge Riendeau laughs when asked if he ever dreamed as a kid while cleaning the barn of his family’s dairy farm that one day he’d be running one of North America’s biggest dairy food companies.
“It wasn’t planned,” says the 65-year-old dairy producer from Quebec’s Eastern Townships, who traded his tractor seat for the president’s chair of Longueuil-based Agropur in 2002. “My dad was involved (with the co-op) and I followed him and things just happened.”
Like Riendeau, who still owns what he jokingly refers to as a “1,000-leg dairy herd” on a farm run by his son, Agropur has come a long way from its rural roots.
Founded in 1937 in Granby, a half-hour drive east of Longueuil, the co-op has completed 140 transactions and mergers in its 76-year existence – a rate of nearly two a year. The deals being made these days however are much more massive than anything the co-op has ever done before. “The early ones were small butteries and dairies,”” says Riendeau. “But the ones now are huge.”
Take the many major moves made by Agropur in 2014, which raised company revenues to $4.7 billion (a 23-per-cent increase over 2013, and an all-time company high) and generated just over $92 million in dividends. Much of the latter went to the co-op’s 3,600 dairy producers in four Eastern Canadian provinces (more than 90 per cent of them in Quebec), whose equity in the enterprise also rose to $1.2 billion.
The first big deal was a merger last March with milk producer Dairytown Products. Located in Sussex, the dairy hub of central New Brunswick, the company processes milk from more than 200 dairy local dairy producers to make mostly skim milk powder, instant skim milk powder, whey protein concentrate, and butter for the retail, foodservice, and further value-added processing trades.
“This agreement is consistent with our desire to keep dairy processing assets in the hands of producers wherever possible,” Riendeau said when the merger was announced. “It will also increase our critical mass in the region and help secure our long-term presence in Atlantic Canada.”
The ink was barely dry on that agreement, which was finalized in June, when Agropur announced another transaction – this one the largest in the Quebec co-op’s 76-year history. Part of a strategic partnership agreement with Sobeys for long-term supply, Agropur purchased the grocer’s dairy processing activities in Western Canada for a cool $356 million.
In addition to four plants – two in Edmonton, and one in both Winnipeg and Burnaby – that process a total of 160 million litres of milk a year, Agropur obtained the licensing of the Lucerne trademark for the production and distribution of fluid milk and cream. “This transaction fits perfectly with our growth strategy,” said Agropur CEO Robert Coallier when the deal was finalized in June. “It will allow us to better serve our customers and consumers from coast to coast. Thanks to the business related to these assets and the renewal of certain contracts, the acquisition of the plants represents revenues totalling over $400 million and sees us accelerate our growth in the Canadian market.”
A month later, in early July, Agropur announced another multimillion-dollar deal to buy the 27-million-litres-per-year dairy and food distribution assets of another major New Brunswick milk company, Northumberland Dairy Cooperative. Just days after that, Agropur announced another historic transaction – a $1-billion deal to buy the dairy processing assets of Minnesota-based cheese and dairy ingredients maker Davisco.
Those assets include three cheese plants (with 170 million kgs total annual production) and an ingredients plant (with 80 million kgs of whey ingredients annually) in the U.S., plus sales offices in the U.S., Shanghai, Singapore and Geneva, and distribution centres in Europe and China.
Finalized in early August, the deal bumped up Agropur’s annual earnings by $1 billion and increased its milk production capacity to 5.3 billion litres at 41 plants across North America, where many of the company’s 8,000-plus employees produce Natrel, Québon, OKA, Farmers, Central Dairies, Sealtest, biPro, Island Farms and other well-known products and brands. The deal also doubled Agropur’s processing operations in the U.S., increased its global milk intake by half, and put Agropur into the top five cheese and ingredients processors in North America.
According to the co-op’s CEO, the Davisco transaction was essentially a strategic move designed to shore up its presence in global markets to help weather the winds of consolidation that are now blowing across the world’s dairy industry. “One of our key business objectives is to pursue strategic acquisitions to diversify our geographic markets and product portfolios,” Coallier said when the deal was announced. “To remain a leader in our field, we must pursue and continue development efforts that aim directly at profitable growth.”
For Canadian dairy industry analyst Al Mussell, the Davisco deal was a major coup for the giant Canadian dairy co-op. “Davisco is a great company,” says Mussell, an agricultural economist and agri-food expert who spent 14 years with the now-defunct George Morris Centre in Guelph, Ont. “They are innovative, competitive (and) a great export platform.”
Those U.S.-based exports, he adds, which notably include protein ingredients to the Far East, could become an important area of future growth for Agropur if liberalization talks like the ongoing Trans-Pacific Partnership lead to significant changes in the milk supply system and the manufacture of dairy products in Canada, which is by far Agropur’s main market.
“Export restraint is a big issue,” says Mussell, who adds that the motives of Agropur’s move into the U.S. seem similar to Canadian competitor Saputo’s recent acquisitions of dairy and cheese companies in Australia. “And it’s doubly important for Agropur, because it’s both a food processor and dairy co-op.”
Mussell also notes that the company’s slate of recent acquisitions appear to strengthen its processing capacity for some promising dairy food products. “The milk beverage category is table flat, and some products like ice cream are in decline. But some are up, especially low- and no-fat yogurts, which has been one of the fastest-growing segments in the past five years.”
He also praised Agropur’s successful in-house development of iögo yogurt, which he described as the first successful launch of a new international brand of yogurt in a generation. Riendeau, too, considers the success of iögo, which is manufactured by subsidiary Ultima Foods (a joint venture with Alberta-based Agrifoods International Cooperative), to be both a tour de force and a prime example of Agropur’s savoir faire.
“We developed and launched a completely new product on the market from A to Z (and) sales have been going up five to six per cent a year in many markets,” says Riendeau from Agropur’s head office, not far from the company’s new research and development facility, where he said “efforts are being made to develop and bring consumers the products they want.”
Riendeau adds that he is hoping for similar success with other new products like Oka cheese (a well-known Quebec brand that Agropur plans to roll out across Canada) and a new lactose-free milk under the Natrel brand. “Canada is a mature dairy market (and) there is no growth in milk,” he says, noting that Agropur and its two main competitors – Saputo and Parmalat – share nearly 80 per cent of the Canadian milk market. “But challenges can also be opportunities, like developing products that combine dairy foods. That’s where we’re headed.”