Ex-Banker Prepares Dairy Business for More Growth

By Alistair Houghton

DRIVING along the Chester bypass, it would be easy to miss the cluster of roofs tucked away up a small country lane.

But if you did miss it you’d be missing out on dairy ingredients business Meadow Foods – one of the region’s biggest companies and among the UK’s biggest suppliers of dairy products.

Its managing director Paul Deakin says Meadow Foods’ products, from cream and butter to chocolate crumb, are found in foods from shortbread to ready meals. Its customers include Cadbury’s, Nestle and Thorntons.

In the year ending March 2008, Meadow saw sales rise 22% to pounds 243m, with profits of pounds 5m. Its headquarters and processing plant at Marlston-Cum-Lache, Chester, employs 150 full- time staff, but Deakin estimates another 375 people in the region are indirectly employed.

With pressure from supermarkets seeking to offer cheaper milk to cash-strapped customers, and rising feed and fuel prices, the dairy industry has had a tough time of late.

But Deakin says Meadow, which has just opened a new butter warehouse and is looking for new milk suppliers, remains well placed for growth. He says Britain’s move towards lower-fat milk can only benefit a company like his that makes products from cream skimmed off at dairies.

"The irony of this business is that dairy companies are generally promoting lower-fat milk," he said. "We’re busy taking the fat out of milk and on the other hand putting the fat back in other products."

In Cheshire, Meadow produces butter, cream, ghee (clarified butter often used in Indian cooking) and anhydrous milk fat (AMF), a key ingredient in ice cream and chocolate.

Perhaps surprisingly, the single bigger use for Meadow’s butter is in shortbread, made by manufacturers such as Walkers.

The next biggest is on garlic bread.

"We’re the largest independent cream processing business in the UK," said Deakin.

"There are only two AMF producers in the UK and we’re three times bigger than the other one.

"With the brand new butter plant we built last year, we’re the largest independent butter producer in the UK."

Meadow acts as a middleman to make sure dairy producers, including industry giants Arla, Dairy Crest and Wiseman have enough milk to meet their needs.

It handles about 400m litres of milk a year. That milk is either supplied to dairies, largely on the basis that when the dairies have skimmed the milk it gets the cream back to process into other products, or is processed directly by Meadow.

Meadow also has a Yorkshire factory producing chocolate crumb, the base ingredient for making chocolate, and sweetened condensed milk used in products such as fudge.

Meadow Foods has its origins in a dairy business attached to the family farm at Marlston Court. In 1992 the milk supply business was sold to Express Dairies and Bodfari, later to become Meadow Foods, was born.

This January Meadow Foods bought Cumbrian-based West Lakes Dairy Park, doubling the size of its milk business.

"We’re still looking for acquisitions that give us the raw material to work with," said Deakin.

Deakin started his career as a chartered accountant with PricewaterhouseCoopers in Manchester before starting a 20- year stint as an investment banker with Rothschild and NatWest.

In 2000 he became a consultant, and one of his projects took him into the dairy industry when he worked with Bank of Scotland at Wiltshire business United Milk.

In 2004 he was asked by Meadow managing director Simon Chantler to become chairman of Meadow. Deakin, who had property interests and continued his consultancy work, was not expecting to go back into full-time employment – but in 2006, when Mr Chantler suggested they swap roles, he jumped at the chance of becoming managing director.

M EADOW has just opened its new pounds 500,000 temperature- controlled butter warehouse, allowing it to store butter onsite instead of shipping it to Shropshire for cold storage.

The move means Meadow saves cuts its road miles by 43,000 a year.

Deakin is planning a pounds 2m warehouse at the site,, potentially creating 25 jobs, but says getting approval for such a development in a rural area is a slow process.

"Currently a lot of our products are stored offsite at a third party, and we want to bring that onsite," he said.

"We’re having a few little difficulties with planning. We’re in green belt here."

If Meadow Foods is to keep growing, then it needs a guaranteed supply of milk.

Deakin is trying to recruit more farmers, but as the UK dairy industry continues to contract, his job could get harder.

The number of dairy farmers in the UK has now fallen below 10,000 for the first time as many farmers leave the industry. The price of milk has risen in recent months, but farmers still feel at the mercy of supermarkets and their buying power.

Tesco, for example, recently launched "Fresh ‘n’ Lo" milk at pounds 1.06 for a two-litre carton, compared to the usual price of pounds 1.42. Other retailers followed, and, though they all insisted they rather than farmers would absorb the cuts, the National Farmers’ Union said the move was damaging to farmers’ confidence.

Deakin says his priority was securing long-term contracts with farmers, guaranteeing both stability for the producer and milk supplies for Meadow.

The milk industry is globalised like any other, and Deakin says international affairs do affect his little corner of Cheshire.

"Consumption of dairy products continues to grow at a rate a bit higher than GDP growth around the world," he said.

The drought in Australia had contributed to world shortages of milk. "The balance between demand and supply is a fine one.

You cannot increase milk production overnight," he said.

Some analysts have told Deakin the food industry is recession proof, but he says he remains cautious about the wider economic outlook.

His customers, however, keep telling him the pressure from retailers to cut prices is growing.

"If retailers put up the price of milk, people will pay it," he said.

"But they’re desperately competing for market share so they don’t want to be the one that charges 1p more."

Deakin says he wants Meadow to keep growing its profitability so it can give farmers a good price for their milk. That, he says, creates a virtuous circle as more farmers will sell to Meadow and so Meadow can produce and sell more of its products.

"Your best sales and marketing tool is a happy farmer," he said.

"They’ll go and tell their mates about you."

Balance between demand and supply is fine

Q&A

Home: Paul Deakin, 49, lives in Staffordshire.

Highest educational qualification: Chartered accountant, and BSc in mathematical economics from the London School of Economics

Proudest achievement: Climbing 21,000ft-high Mera Peak in Nepal

Outside work: Mountaineering, skiing, diving and riding

Unfulfilled ambition: Too many to mention, whether in work or mountaineering.

Best advice: If it’s too good to be true, it probably is. I learned that in investment banking.

alistairhoughton@dailypost.co.uk

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