Brief: Sustainability could have a big impact on business structures for dairy, says new RaboResearch

The global dairy sector saw slower revenue growth in 2023 but could undergo a major shift thanks to upcoming M&A activity, says Rabobank’s RaboResearch arm. Reaching sustainability targets could be a big driver for these deals and others, according to the RaboResearch Global Dairy Top 20 report.

Deal activity among the top 20 dairy players was “limited,” says the report. Danone is the one exception here, as the company divested its Russian business, and also sold its Horizon Organic and Wallaby brands to PE firm Platinum Equity.

The report notes that “multiple possible deals” are on the horizon as large dairy companies reexamine priorities and in some cases shift focus back to “core businesses.” This inevitably means shedding parts of the business that are less profitable or don’t fit within “key strategic priorities.”

For instance, Unilever announced earlier this year it was spinning off its ice cream business to “become a simpler, more focused company.”

The move could also “allow Unilever to accomplish its sustainability targets more easily by removing a significant portion of its dairy-related brands from its overall portfolio,” says RaboResearch.

RaboResearch says it believes corporate sustainability targets “could play an increasing role in determining business structures” in the future. “We may see some companies choose to keep minor controlling interests as a way to achieve sustainability-related goals more easily by keeping parts of the business further from the core.”

Another notable deal to watch will be Fonterra’s pivot back to its B2B ingredients and foodservice business, which may translate to the company shedding its consumer-facing businesses. General Mills has also proposed a divestment of its Yoplait brand.

RaboResearch “estimates that other companies could announce similar, significant divestments in the coming years as the M&A landscape heats up again after a period of stagnation.”