Lakeland Dairies and Fane Valley have announced a deal that will see them merge their feed and dairy processing into two separate companies.

The two co-operatives have agreed two separate joint ventures, which they say will improve economies of scale and overall competitiveness.

The first will see both sides merge their feed manufacturing, sales and stores into one agribusiness, which will be managed by Fane Valley with Lakeland Dairies as a partner and shareholder.

The combined business would have a potential feed manufacturing capacity of over 500,000 tonnes and is expected to begin with annual revenues of around €175m.

The second joint venture will see both co-ops merge their dairy processing operations, managed by Lakeland Dairies with Fane Valley acting as a partner and shareholder.

The new dairy company is expected to process more than one billion litres of milk each year with annual revenues of €670m anticipated.

The tie-up requires the approval from the board of both Lakeland Dairies and Fane Valley, which are based in Cavan and Down respectively.

The prospect of a full merger of the two societies has also been raised as a possibility in the future, though both sides said that this would require member approval.