Belfast Telegraph

View from Dublin: testing times lie ahead for Irish dairy industry

By Samantha McCaughren

With the UK's scheduled exit date from the EU looming, the real difficulties a hard Brexit would deliver for the Irish food industry have begun to emerge. And it's not a pretty picture.

Ornua, which exports Irish dairy products on behalf of dairy processors and farmers, has a huge challenge ahead. How do you draw up contingency plans for the severe disruption of products which generate hundreds of millions of euros in annual sales?

Ornua chief John Jordan remains upbeat regarding the potential problems ahead. While accepting that even the best Brexit will cause challenges for the Irish cheese business, he is confident that the industry will thrive and overcome this incredibly frustrating turn of political events.

For Jordan, Ornua and its members are used to dealing with uncertainty.

They sell Irish dairy products into markets where prices fluctuate widely and currencies constantly change in value against the euro. They deal with market disruptions such as swings in demand in China or sudden closure of markets due to sanctions or other political events.

They constantly monitor the weather in New Zealand and in dairy-farming regions of the US to gauge the likely supply of products on to world markets.

Jordan and his team already have as much responsibility for risk management as any management team might reasonably be expected to handle. And now they have Brexit.

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This year, Ireland's 18,000 dairy farmers will produce over seven billion litres of milk from 1.4 million cows. Only about 5% of that milk is consumed as liquid milk. All the rest is processed into products such as cheese, butter and dairy powders, and over 90% of those products are exported.

The UK takes a quarter of all our dairy exports, and UK businesses pay around €1bn annually for Irish dairy products. However, the UK market is even more significant than those figures would suggest - it takes around half of Ireland's cheese exports and a quarter of Ireland's butter exports.

Most Irish dairy processors sell into export markets through Ornua. In some ways, Ornua's task is simple: return the maximum price to the processors so that they can pay the highest possible milk price to farmers. A processor typically gets somewhere between 45 and 50 cents for the products that it produces from each litre of milk. Its total processing costs are around 15 cents per litre, and the balance of around 30 cents per litre is paid to the farmer.

As world dairy markets fluctuate, these numbers vary, and that alone presents Ornua with major challenges.

Jordan was frank that even with the best Brexit possible, costs will go up. "Any change in the status quo today will be detrimental in that adds costs into the supply chain," he said. "There would be more documentation, more paperwork, more administration costs, regardless of what happens."

Even if there were no tariffs, Ornua estimates cost increases of 6% to 8% for administration. In addition to that, there could be a weak sterling post-Brexit which would add to the shelf price of Irish products.

"There's definitely a risk in a hard Brexit that value will come out of the supply chain, that if we can't recover that from the customer all of us get pinched from the sellers to the processors, through to the farmers," he added.

Ornua is taking a number of steps to mitigate this and while there is clearly a very significant downside to a hard Brexit, Jordan is optimistic about the resilience of the industry. Cheddar is heavily dependent on the UK. Ornua's butter is not, as Kerrygold is hugely popular in Germany, France and the US. The other big export product, milk powders, is not dependent on Europe.

New markets for cheese is one option being pursued. The UK exports 75,000 tonnes of cheddar and if Irish produce can't get into the UK because of hefty tariffs, UK cheese won't be able to get out. Ornua has identified these customers and will target them. Much cheddar demand is from former British colonies.

Even if Irish cheese loses access to the UK, it will do its best to continue to supply its customers until Irish cheese can hopefully return to the market. Ornua employs 1,000 people in plants in the UK and will if necessary use British cheddar to supply customers - it already uses some British cheddar.

Ornua has also trialled alternatives to the UK land bridge, bringing yoghurt to Germany via ship.

Ornua has 'stockpiled' or warehoused stock but Jordan said that it's possible trucks will be in short supply, stuck at various ports delaying deliveries. Even with the best planning, uncharted territory lies ahead.

Jordan's verdict? "Our view is if anything is not as it is today, the first few weeks are going to be hectic."

And that's putting it mildly.

Belfast Telegraph