03 Apr Dairy giant creates value for Irish farming families
John Jordan, CEO, Ornua, reveals why Ireland produces the best milk in the world and how that contributes to the global success of Kerrygold, the country’s first billion-euro food brand
Ornua is one of the leading players in the dairy sector, one of the most developed and profitable segments of Ireland’s agriculture: the country counts over 18,000 dairy farmers, 1.55 million dairy cows and benefits from a temperate climate and abundance of grass to produce excellent quality milk. How does Ireland’s dairy industry stand out globally and how would you rate its competitive advantages?
Ireland gets a lot of rain which is ideal for growing grass. Over 50% of our land is used for growing grass for agriculture which allows our cows to graze outdoors for most of the year. Ireland is one of two countries in the world where the predominant diet of a dairy cow is grass which puts us in a unique position in terms of producing what we genuinely believe is the best quality milk in the world.
99% of the farms in Ireland are family owned. They have been handed down from generation to generation and it wouldn’t be uncommon to have two or three generations working the land. In addition, we have a very well-educated farming workforce who have a thirst for knowledge. For example, we have a annual Dairy Open Day in Ireland where 12,000 farmers attend and the only thing that’s on offer is knowledge, albeit from some of the world’s leading dairy management scientists. The day centres around the latest research and demonstrates techniques for continuous improvement on farm.
In addition, Ireland’s dairy manufacturers are some of the best invested dairy processing plants in the world who produce high quality dairy products off our grass-based system. The vast majority of what we produce gets exported, and our way of farming offers a unique selling point globally. Ireland, as an island, is a little over 5 million people, but we produce enough dairy products to feed 50 million people a year.
What are some of the latest trends, key challenges and developments in the dairy sector?
The connectivity of consumers is what has changed dramatically over the last number of years. The access consumers have to knowledge is really interesting. Certainly high on people’s agenda today is sustainability and Ireland is well placed to meet global demand for sustainably produced, high quality dairy products. Ireland is one of the most carbon efficient countries in the world to produce milk – nearly twice as efficient as most other European countries.
Ireland is the first country in the world to have developed a sustainable dairy assurance scheme, which is third-party accredited, and looks at a whole range of sustainability parameters across the farm. Over 96% of our farmers are signed up and it measures everything from grass intake, to carbon emissions, to biodiversity. This independently audited scheme provides us with the necessary proof points to demonstrate our way of farming to consumers globally.
Ornua is Ireland’s largest exporter of dairy products, with €2.3 billion revenues generated in 2019. The company has a rich history and is celebrating its 60th anniversary this year. Could you give us a general overview of Ornua, its role, positioning and contribution to the sector? How does it contribute to the advancement of the food and dairy industry in Ireland?
Ornua has a strong global team of 2,400 people who are passionate and committed to adding value to Irish milk. We export to over 110 countries and have 12 manufacturing facilities and 9 innovation centres in Ireland, the UK, the US, Germany, Spain, Saudi Arabia and Nigeria.
Farming is a huge part of our way of life in Ireland. Typically, those from Ireland are no more than one generation away from a farm, so it’s culturally part of who we are. Having farmers as your shareholders is a unique and privileged position. Farmers, unlike listed companies with quarterly earnings pressures, think long term and about the next generation.
Ornua has continued to invest in new routes to market all over the world for our Irish dairy products. For Kerrygold to become Ireland’s first billion-euro food brand is a phenomenal achievement. We are a small little island on the periphery of Europe and today we are well established in many markets globally. In Germany, we are the No. 1 butter, spreads, and cheddar brand in market, in the US we are the No. 2 butter brand with 10% of US dairy consumers saying Kerrygold is their preferred brand. Each week, we sell over 10 million packets of Kerrygold branded cheese and butter at a premium. At Ornua, our job is to add value to Irish milk and Kerrygold is a key way in which we do that. The premium we capture on shelf is ultimately paid back to our members and farmer shareholders.
In 2019, Ornua recorded an 11.5-percent increase in its revenues and a 21-5-percent increase in operating profit—that’s quite spectacular. What have been the key drivers and some of the latest investments behind this performance?
Ornua has a very balanced product and geographical portfolio. Our business is made up of two divisions, our consumer branded business and our B2B ingredients business. We continue to invest in our brand – in marketing, advertising, and product innovation. For example, we launched a new Shreds and Slices cheese range in the US with 1.8 million packets sold in the first year. We have also launched a range of new milk powders in Nigeria under our Kerrygold Avantage brand which addresses market demand for premium fat-filled powder.
In our ingredient’s division, we continue to invest in our production capabilities. In 2019, we opened a €30 million state-of-the-art pizza cheese production facility in Spain, enhancing our pizza cheese making capability. In the US, we invested $10 million in the expansion of our facility in Wisconsin, which will look to unlock 30% in future growth capacity.
Key to success is close collaboration with your customers. I think it is remarkable when you look at what has happened in the last 12 months: we walked out of our offices in March 2020 and our business did not miss a beat. Our customers had no break in service. That partnership with customers, helping them meet the demand they saw due to Covid has certainly helped us throughout the year. We will see good growth in 2020, similar to 2019, and are well positioned for further growth in 2021.
If 2020 was marked by the COVID challenge, 2021 will be marked by the Brexit challenge, which is impacting Ireland more heavily that any other countries. The food industry has been particularly affected. How would you summarize the double impact of COVID and Brexit for both Ornua and Irish food exporters overall?
Regarding Brexit, we saw it coming and we have been preparing for every eventuality for four years, mitigating against risk as best we could. The UK is our closest trading partner, and we welcomed the deal in late December, but any change to our trading relationship is negative. Today we have tariff free access, but the additional administration costs in trading with the UK should not be underestimated. That said, the UK will continue to be a strategically important market for us. We have four production facilities in the UK, we employ over 1,000 people and we sell into retail and B2B ingredients sectors. The UK are a dairy deficit country, so they will continue to import. Certainly there will be challenges ahead and it is important that over the next period of time, the post-Brexit relationship for the UK and the rest of Europe can hopefully grow to facilitate trade.
From a COVID perspective, like everybody in the world it caught us by surprise. When we look back on the last 12 months, it’s impressive how robust and agile our teams have been and they responded to protect our business. It was, and continues to be, a challenge. Coming into 2021, our expectation was a gradual easing of lockdowns and a re-emergence of the foodservice sector. Unfortunately, that’s not the case with many markets in more severe lockdowns than they were last year. What we’ve seen is a complete change in consumer buying behavior with consumers eating most of their meals at home. With an increased focus on health and wellbeing, consumers bought nautral foods from brands they can trust. With just two ingredients; cream and salt, Kerrygold butter benefitted greatly from this.
In contrast, we have seen a drop in our foodservice business which saw that business not just slow down, but in parts, disappear overnight. Overall, we have a very balanced portfolio, and we are managing through this challenge better than anticipated.
Kerrygold is the jewel in Ornua’s crown. What is your strategy for continuing to add value to the brand and developing it further?
We’re very proud of Kerrygold. Kerrygold has a long history and we’ve invested in the brand for nearly 60 years. We still see significant growth in Germany, the US, the UK, and Ireland both in our existing product portfolio, but also in some very exciting innovations.
Investing in markets like Nigeria or West Africa is hugely important for Kerrygold, for the long term future of our brand. We are keen to seed markets for future development to ensure our successors can enjoy the phenomenal growth we are experiencing today. That means sustaining investment in these challenging markets to establish a strong foothold, that in time, will allow significant growth and expansion.
Ornua has nine innovation centers. Generally speaking, how and where does Ornua innovate and what are your priority research fields? Could you give us a couple of examples of the company’s flagship innovations that have been introduced to market or are currently in the pipeline?
Ireland is recognized as having a very strong education system and a very well invested science and technology industry. In conjunction with Teagasc, the government research agency, we have developed some technology to recombine Irish dairy products to produce fresh white cheese for sale in the Saudi Arabian market. The dairy system in Saudi Arabia is water intensive, so it makes sense to export Irish dairy products.
Our Ingredients business in North America has a dedicated innovation centre to produce functional cheese for the B2B market. There are a lot of technologies that go into the production of these cheeses and we invest heavily in this area. We develop bespoke cheese products for our customers that meet their own product requirements.
Ornua has adopted a robust sustainability framework: “Our Way matters.” Can you expand on your sustainability efforts? What sort of guarantees does Ornua offer around transparency, safety, traceability and animal welfare?
What is high on the agenda for consumers is transparency and sustainability. Our cows graze on fresh grass for most of the year, which is a less intensive system. Over 96% of farmers are registered with the Sustainability Dairy Assurance Scheme, which is independently audited against a range of criteria including animal welfare, housing conditions and the way they feed their animals – it is fully transparent. Ireland is the most carbon efficient system for producing milk in the northern hemisphere. It takes two times more carbon to produce milk in some other European countries compared to Ireland. In addition, 99% of the water used on Irish dairy farms comes from rainfall, so it is naturally irrigated.
We are also looking to reduce emissions intensity within our own business. We set targets in terms of overall reduction of emissions by 15% which we have achieved every year since 2016. In addition, we are looking at ways in which we can reduce our plastic packaging. For example, we launched a simple but innovative new packaging solution for our Pilgrims Choice cheddar brand which has 40% less packaging per pack. Pilgrims Choice is the No. 2 cheddar brand in the UK and this solution meets the needs of both consumers and customers. It’s cost effective and really impactful.
What are some of the main directions that the Ornua group aims to take going forward?
Ultimately what we’re trying to do is create value for Irish farming families, and we’re really sincere about that. Value means money, so how do we get more money back to our Irish farming families, so they can sustain their own businesses. A lot of the focus for our strategic growth plan for the next five years is about ensuring we focus on where we have a point of difference and where we can win. Kerrygold is one of those areas – when consumers actually get to taste Kerrygold, they can really taste the difference. Our strategy is to continue to leverage the Kerrygold brand, get it into more households across our key markets and get consumers to buy it more often. We also want to introduce new products and new categories – but we will stay close to our heritage, and our heritage is Irish dairy.
Ornua has a huge international footprint, with a presence in 110 markets. What are some of the most promising ones for your products?
Our key strategic markets of Germany, USA, Ireland, and the UK offer a great foundation in which we hope to see further growth.
In the future, we see very significant growth potential in the continent of Africa. It’s an very interesting continent with 54 countries and enormous diversity. One of our biggest markets for cheddar cheese, for example, after the UK is Algeria. We are keen to seed markets for development in the future with the hope that in time, it will allow for significant growth and expansion.
What has been the impact of the U.S. trade-tariff increase on Irish butter and cheese for your brands? How do you foresee the group’s future in the huge, yet competitive U.S. market?
In the US, Kerrygold commands a premium, which is typically 50-75% more than domestic butter. In October 2019, and in response to Airbus and Boeing disputes, new US tariffs on European butter were introduced. 90% of the butter exported from the EU to the US is Kerrgyold, so it didn’t hit Europe, it hit Ornua and Kerrygold as a single brand which is extremely punitive.
A 25% additional tariff was introduced on top of the costs of importing into the US. We had no choice but to pass it onto consumers. We were very fortunate that retailers in the US understood, and accepted the additional cost. It means the US consumer is paying for it, which I’m sure was not originally intended. It has impacted our business, increasing our price on shelf which means we’re typically double the price of American butter. It’s a large premium to be asking consumers to pay. That said we’re still seeing growth in our business which is down to the quality of our product.
Looking forward, and with a change in administration in the US, I would hope they look to repair the trade relationship with Europe in the medium to longer term.
When it comes to marketing, what are some of the key messages or features you lean on for your communication?
When you own a brand like Kerrygold, it is important to tell the story authentically. Over the last couple of years, we’ve moved our digital marketing to having our own farmers tell their stories. It is emotional because it is real. There are no actors, there is no script – this is life on an Irish dairy farm. This story has resonated with our consumers all over the world.
What would be your final message to conclude this interview?
Ireland is the best place in the world to produce milk. Our dedicated farmers, and our grass-fed farming system, produce the best quality milk in the world. We have state-of-the-art dairy processing facilities that produce quality dairy products that consumers all over the world love. Add this to Ornua’s value added routes to market and expertise in global trade and you have a really compelling business. The future is bright for Irish dairy, with the world’s population growing and an increased demand for natural, quality, sustainable dairy products, Ireland and its grass-fed family farming system is well placed to meet this demand.