Irish dairy ‘a net loser’ regardless of Brexit outcome

Ornua chief executive Kevin Lane warns Ireland’s dairy industry is in for rough ride

Kerrygold saw record retail sales of €900 million in 2016. (Photograph: Clare Keogh)

Kerrygold saw record retail sales of €900 million in 2016. (Photograph: Clare Keogh)

 

Ireland’s dairy industry will be a “net loser” regardless of whether the UK achieves a hard or soft Brexit, Ornua’s chief executive Kevin Lane has warned.

“We can see no possible scenario where the dairy side of Ireland Inc or the dairy side of agriculture will be a winner here,” he said following the launch of the dairy exporter’s annual report.

More than a third of Ornua’s €1.75 billion turnover is generated in the UK, leaving it extremely vulnerable to a change in Anglo-Irish trading relations.

Mr Lane said the decline in sterling was already having an impact and would hit group profits this year as hedging arrangements lapse.

On the likelihood of maintaining tariff-free access to the UK market after 2019, he said he was optimistic that that would be the case but suggested such an outcome was still likely to involve some level of restriction.

“While we’re hoping for the minimum amount of trade barriers or levies or fines, we’re not naïve enough to think there won’t be some.”

Mr Lane said Brexit was also likely to make “product crossing borders” more bureaucratic, which will impact profitability.

“We’re not being sensational or trying to be overly pessimistic but as business people we have to plan for what we think is the practical endgame, and the practical endgame for us is we will have less volume and we will have less profit in the UK,” he said.

Cheddar brand

In the cross hairs of Brexit from a dairy perspective is cheese, with over 50 per cent of Irish cheese sold into the UK market.

Ornua’s Pilgrim’s Choice brand is the UK’s number two cheddar brand and the fastest growing, worth about €85 million in sales a year. Mr Lane said the group was attempting to reduce its reliance on the UK market.

Ornua, formerly the Irish Dairy Board, is Ireland’s largest dairy exporter. It sells and markets products on behalf of some of the State’s leading dairy co-ops.

Despite the uncertain trading environment, Ornua saw operating profit jump 46 per cent to €26.6 million last year on foot of a record €900 million in sales of its flagship butter brand Kerrygold.

The group sold DPI speciality foods at the end of 2015 and, excluding this sale, group turnover rose by 9.1 per cent to €1.75 billion while group earnings before interest, taxes depreciation and amortisation increased by 18.4 per cent.

A members bonus of €14.5 million was declared in 2016 which includes a final bonus from the gain on the disposal of DPI of €5 million.

“These results were achieved against a backdrop of significant market volatility and political uncertainty,” Mr Lane said.

Ornua’s annual report shows the group’s top 15 executives received €4.3 million in pay, bonuses and pension entitlements last year, down marginally from €4.4 million. The co-op does not break out the individual remuneration but insists its members are happy with the level of transparency.