It’s been a tough, tough market place for everyone, for the farmers and co-ops” said Ornua interim CEO Donal Buggy. Summing up how 2023 has gone so far in dairy markets, he said “we have been trying to support product price through this period.”

Looking ahead, Buggy said that while he has no unique insight into where the market is going “the signs are we could be at a bottom for a while…a recovery [in prices] does not look imminent.”

He pointed out that this time last year everyone was worried about a global recession. While that never came, there has been a drop in consumer demand, particularly in Asia.

There is no sign of demand from China rebounding, with activity from buyers in the Asian nation remaining very inconsistent from week to week, and very little buying further out into the future.

Price worries

If buyers were worried about prices increasing in the short- to medium-term, they would be locking in prices for delivery over the coming months now. Buggy sees very little of that happening at the moment, with buyers happy generally to just purchase for immediate needs.

When it comes to Ornua’s ability to support its co-op members – and through them, help support Ireland’s dairy farmers – there are some challenges in the consumer space.

Germany is Ornua’s biggest market for Kerrygold by volume, but profit margins there have come under pressure this year.

A mixture of increased competition, regulatory pressure on retailer prices and supermarket promotions centred around butter has meant that Ornua has had to work hard to maintain market share.

Buggy is quick to point out that the product remains profitable in Germany, but not at the same scale which it enjoyed during COVID-19.

In the US, the Kerrygold business remains very profitable, and there is less direct competition for the product in that market at the moment.

When asked about other Irish co-operatives launching their own brands into the US he said “You’d prefer not to see Irish competitors in the market against Kerrygold, but if there are, we’ll respond accordingly.”

Sales increase

Ornua’s value-added ingredients business-to-business has performed well across Europe and the US this year. While its food service business shut down during COVID-19, Buggy said sales to fast food restaurants and ready-made meals producers have picked up. Even though the margin in these sectors is not as high as what the best Kerrygold markets are making, they are still in “high single digits” according to Buggy.

Looking ahead at the prospects for the Irish dairy industry, Buggy said the need is to respond to supply that has probably already peaked.

“When I joined Ornua in 2013, the challenge we were faced with was how the company would cope with increased volumes. We not only catered for those increased volumes, but we also managed to create added value as production ramped up.

“What we need to do now is move to concentrating on creating more value for volumes that are likely to be stable, at best, for some time to come.”

For Ornua, he said, that focus means selling as little commodity product as possible.

Comment:

There has been some press speculation in recent days about the possible breakup of Ornua and the sale of the Kerrygold brand. it is difficult, having listened to Donal Buggy, to see where the logic in such a course of action would be.

The diversity of its business streams is one of Ornua’s strongest suits. Not everything it does can be a block of butter in the US, but strength through the dairy product range means it is well positioned to weather changing economic conditions.

Taking out any of its business segments would only serve to handicap a company which has successfully built up global demand for Irish dairy products.

It may be tempting for some co-operatives, who themselves are under pressure in the current trading environment, to look to sell the golden goose for a once-off capital injection.

However, disposing of a successful business which has the potential to provide returns for years to come in favour of a quick cash boost seems like the worst kind of short-term thinking.