Dairygold ‘contingency planning’ for hard Brexit with tariffs

Dairygold, the State's largest farmer-owned processor, said it was now "contingency planning" for a hard Brexit involving the imposition of tariffs on exports into the UK.

Chief executive Jim Woulfe told The Irish Times there was no point in banking on a soft Brexit in the current climate. "We have to identify what the worst is. We can't sleep walk in here as a business."

Dairygold is the biggest Irish exporter of cheddar cheese to the UK. About a third of its 1.2 billion litre milk pool goes into the production of cheddar cheese for the UK market.

A reversion to World Trade Organisation (WTO) rules would mean the imposition of a 16 cent per litre tariff on dairy exports to the UK. This would make trade with the UK unprofitable, Mr Woulfe said.

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The problem for Dairygold and the Irish dairy sector is that cheddar cheese is really only sold in the UK and Ireland, and so the possibility of market diversification is limited.

Mr Woulfe said Dairygold had a team of people involved in scenario planning around Brexit. “We’re doing the right things by our members in advising, in communicating and in planning. The thing we’re short of at the moment is solutions.”

Operating profit

He was speaking at the launch of Dairygold’s annual results, which showed the co-op generated an operating profit of €17.5 million last year, down nearly 9 per cent on 2015. Turnover was also marginally down at €756 million.

However, the co-op described the results as solid in the context of a “very weak returns” from international dairy markets.

"Our profit numbers reflect the decision that the board and management took to support our member suppliers. Basically we reduced the level of profitability to allow us to increase the milk price that we could pay," said Dairygold's chief financial officer Michael Harte.

The numbers were also negatively affected by the Brexit-related slide in sterling, which forced the group to write-down the value of certain UK assets.

A bright note was the continuing growth in its de-mineralised whey powder business, with approximately 50 per cent going to dairy heavyweight Danone, which is sold in infant formula.

Whey, the once discarded by-product of cheesemaking, now accounts for an increasing share of Dairygold’s food ingredients division.

The co-op has spent €200 million on a capital investment programme over the last six years to gear up for the ending of milk quotas. Its annual milk processing capacity is now 1.2 billion litres, up 24 per cent on 2014.

Company reserves

“We have put the infrastructure in place, and now it’s about how we add value rather than volume,” Mr Woulfe said, noting the co-op had a possible war chest of up €160 million, comprising company reserves and banking facilities, for suitable acquisitions. He said the growth trends were in early-life and adult nutrition.

Last year Dairygold strengthened its commercial partnerships with global food companies with the announcement of a planned development of a new Jarlsberg cheese facility in partnership with Norway’s largest dairy processor Tine. When fully operational the plant will take up to 10 per cent of Dairygold’s milk pool.