ICMSA takes a swipe at Ornua over profit rise while milk prices collapsed

Tipperary Star reporter

Reporter:

Tipperary Star reporter

Email:

news@tipperarystar.ie

ICMSA takes a swipe at Ornua over profit rise while milk prices collapsed

Gerald Quain

ICMSA has criticised Ornua and its role in setting milk prices following the agri-umbrella group's launch of its 2016 figures which showed a rise in profits.

According to the figures, Ornua delivered a strong trading performance in 2016, with group EBITDA up 18 per cent and turnover rose by 9 per cent, on a like for like basis, to €1.75bn.

This performance was achieved in a year of volatile milk prices and political uncertainty in a number of key markets, they said.

However, ICMSA dairy chair Gerald Quain has hit out at the figures and comments, saying that dairy farmers, who were the basis of the whole sector, would carefully note that in common with other some milk processors Ornua’s margins rose throughout the 2015 / 2016 price collapse that had wiped out the farmers’ margins and milk income.

Mr Quain said that while farmers always knew that the other links in the supply chain guarded their own margins and simply pushed any losses backwards on to the farmers, it was noteworthy to see the figures as presented in the Ornua results where the company recorded an EBITDA jump of 18 per cent and operating profits up 46 per cent in a year when dairy farmers only broke the 28cpl costs of production in the fourth quarter having received a price well below the costs of production for over a year at that stage.

Mr Quain said that while farmers accepted the need for profitability in the processing and marketing sectors, increasing profits in a year when farmers’ margins were slashed highlighted the divergence between the what he called the “hard pressed foundation level’ of the Irish dairy sector and the “processor / marketeer Level” and it was important going forward that that co-op ethos was maintained and that the pain was shared during periods of market downturn.

“Increasing profits in a year when farmers’ incomes were at rock bottom only confirms what we already knew: every link in the supply chain might benefit when prices are rising, but only farmers’ margins are wiped out in a price downturn,” he said.

Mr Quain said that this ran counter to the co-op ethos and there was a need to see greater support for farmers during periods of market downturn.

Highlights

Meanwhile, among the highlights of 2016, according to Ornua were Record Kerrygold global retail sales of €900m with the US reporting 20 per cent volume growth; successful launch of Kerrygold Yogurts in Germany, with over 10 million pots sold in the first six month; the opening of Kerrygold Park, a 50,000 MT butter production and packing plant in County Cork; the commissioning and opening of Al Wazeen - Ornua Saudi Arabia’s cheese plant in Riyadh, the successful integration of Shanghai-based dairy manufacturer Ambrosia Dairy into Ornua Asia, and the acquisition and integration of US powder ingredients business, CoreFX Ingredients.

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

Meanwhile, IFA National Dairy chairman Sean O’Leary has said there are many good reasons for the optimism for 2017 milk prices, voiced by many industry leaders in recent months, to continue underpinning co-ops’ milk price decisions this month and next.

He said many factors would likely influence global output, stocks and demand in a positive direction for milk prices and farmers, including a 3 per cent fall in the 2016/17 New Zealand output; fresh EU SMP supplies are well down; production is down in the Netherlands; average EU butter prices have risen and Chinese and SE Asian dairy demand is vibrant.

Mr O'Leary said these were all good reasons for co-ops to remain ambitious when setting the April milk price later this week, and the peak milk prices over the next two months.

He said that all the main commodities relevant to the Irish product mix had seen price uplifts in the last week of April, to a milk price equivalent return, after 5cpl processing costs, of 31.13cpl + VAT, or 32.8c/l including VAT.