2020 was an impressive year of growth for Irish dairy exporter Ornua, which saw operating profit up a whopping 69% last year – but what drove this bumper performance?
Speaking to Agriland following the publication of the exporting giant’s 2020 financial results this morning (Wednesday, April 21), Ornua CEO John Jordan commented on the factors involved last year:
“We’re delighted with it; it’s a reflection of an incredible team performance – when you see group EBITDA up 50% and group profit up 69%.
Ornua performance
“Going into 2020, we were talking about Brexit and the impact that might have on Ireland and our business; we were talking about weak oil prices; commodity price volatility; Donald Trump had just introduced the tariffs linked to the Airbus and Boeing dispute – a 25% tariff on European butter into the US,” Jordan explained.
“We were getting our head around all of that and how we could deal with those challenges leading into 2020 when, two months in, we get hit with Covid-19 – a global pandemic which fundamentally just changed all our worlds.
“The biggest change for us as a business was the change in consumer buying patterns,” he said.
“If you think about a market like the US, where 50% of food was consumed outside the home, and 50% in the home; with Covid and lockdowns pretty much all over the world, that became 100% consumed at home.
“Certainly, Ornua and the Kerrygold brand benefited from that. Consumers in all of our key markets went back to brands they know and they can trust; they went back to a lot of home cooking and indeed a lot of home baking.
“Fortunately Kerrygold played a big part in all of that – which is why we saw a 13% increase in the Kerrygold volume in 2020, which is a great result.”
On lockdown consumer behaviour, Jordan said: “I think we’ve all struggled with isolation and lockdowns, and there is a little bit of treating and indulgence – but there’s also things you trust, and I think Kerrygold benefited from that.
“You were inclined to be kinder to yourself through lockdown; splurge a little bit and ensure quality.
“Kerrygold is made from Irish family farms; we’d always argue it’s the best quality milk in the world – and Kerrygold is a world-class product – and consumers know and understand that.”
US tariff suspension
Turning to another big concern the company had at the beginning of last year, the CEO commented on the state of play regarding 25% tariffs imposed on EU butter exports to the US as a result of a trade dispute between the EU and US in 2019.
“Donald Trump, as US president, introduced these tariffs in response to the Airbus-Boeing dispute; and relevant for us was a 25% tariff on EU butter.
“But 90% of the butter exported from the EU to the US is actually Kerrygold – so we argued it wasn’t an EU tariff; it was a tariff on Kerrygold specifically.
“The purpose of that tariff was to make us less competitive in the US. And it did have that effect; we passed that price on and consumers saw a very significant increase on the shelf-price of Kerrygold, and that did slow our volume down.
“Then Covid came along and the buying patterns changed; we saw a great growth in Kerrygold, but at very high prices.
“We’re fortunate now in the change of administration to Democrats and President Joe Biden; he certainly seems to be more pro-trade.
One of his early actions was to agree with the EU that they would suspend tariffs in both directions from mid-March for four months.
“Our hope is that during that period negotiations would be ongoing and we would have a resolution that will result in either further suspension or hopefully abolition of those tariffs.
“Removal of those tariffs would be great; it would allow us to reduce back down the on-shelf price of Kerrygold, and we think it would drive further growth, accelerated growth, which would be great for Ornua, great for our shareholders and great for farming families.”
Brexit
Turning to Brexit, and how Ornua has fared so far, Jordan said: “We had a lot of tactical work done – but it wasn’t until very late in the day, late December, that agreement was reached, and thankfully it was reached.
“The outcome is probably the best of the options that were on the table, because they weren’t going to revert to being part of the EU, and there was going to be a change.
“We do have full access to the UK market; we don’t have to pay tariffs. We do however have additional administration costs – there is more paperwork; there’s an increased level of burden and responsibility around what we have to do, and it just makes it more difficult.
“We are a little bit less competitive going into the market but the question then is will the market rise to cover those costs, can we recover them from retailers and customers?”
However, the CEO maintained: “It’s a very positive outcome; 60% of our cheddar cheese goes into the UK market. It is a good market for that product.
“Ornua has a very substantial presence on the ground in the UK; we’ve four manufacturing sites; we employ 1,000 people – it’s a really key strategic market for us.
“We own Pilgrim’s Choice, which is the number two cheddar brand in the market, and it’s a really good market for us.
“So, we’re positive about the outcome of Brexit, albeit there is some administration costs in doing business there,” Jordan concluded.