Dairygold reports record earnings on foot of ‘butter bubble’

Co-op says uncertainty means it must make contingency plans for hard Brexit

Dairygold chief executive Jim Woulfe warned that the global dairy market was returning significantly less than the milk price paid to producers. Photograph: Matt Kavanagh

Dairygold chief executive Jim Woulfe warned that the global dairy market was returning significantly less than the milk price paid to producers. Photograph: Matt Kavanagh

 

Dairygold, the State’s largest farmer-owned processor, has reported record earnings for last year on foot of the so-called butter bubble.

The Cork-based co-op saw operating profit jump 85 per cent to €32.4 million on the back of a 28 per cent rise in revenue to €965.5 million, also a record.

The improvement was driven in the main by global butter prices, which rose to an unprecedented €7,000 a tonne last year, more than twice the long-run average.

About 45 per cent of Dairygold’s 1.3 billion litre milk pool goes into the production of butter products.

But chief executive Jim Woulfe warned that, since the final quarter of 2017, the global dairy market was returning significantly less than the milk price paid to producers as a result of a “rapid deflation of the butter bubble”. Prices for the dairy staple are now below €4,000 a tonne.

To insulate the group against such volatility, Dairygold is developing a range of value-added cheese and milk powder products, which are less prone to price fluctuations.

“For Dairygold, the dairy market volatility in 2017 highlighted the importance of pursuing our value-added strategy, which is aligned to long-term opportunities in global dairy demand,” Mr Woulfe said, noting the co-op had invested €162 million in its four main processing plants in Cork over the past five years.

Cheddar exporter

He said the co-op was also contingency planning for a hard Brexit involving the imposition of tariffs on exports into the UK.

Dairygold is the biggest Irish exporter of cheddar cheese to the UK, exporting about 30,000 tonnes annually. As the product is really only sold in the UK and Ireland, the possibility of market diversification is limited.

Mr Woulfe said the group was clearly concerned by the continuing uncertainty in relation to Brexit and was focused on exploring new routes to market and product diversification as part of an overall risk mitigation strategy.

He described its recent deal with Tine, Norway’s largest co-op, to construct a new facility to produce Jarlsberg cheese on the site of Dairygold’s existing speciality cheese plant at Mogeely, Co Cork, as a “Brexit-proofer”.

Providing it gets planning, the plant is expected to begin production in 2019.

Dairygold’s milk production rose 8 per cent to 1.3 billion litres in 2017, representing a cumulative volume increase of 55 per cent since 2009. The co-op was planning to reach this level of production by 2020 on foot of the ending of European Union milk quotas but this has been achieved nearly three years ahead of target.

Dairygold on Wednesday also announced it would begin importing more than 2,500 tonnes of fodder from the UK in a bid the address the current shortages.

The unusually cold weather has meant livestock are continuing to be housed indoors, placing greater pressure on farmers to feed them.