Cork dairy farmer Bertie O’Leary is clear that Glanbia marketing cheese under its own brand in the US – competing with Kerrygold – is the right move.

“I think they are right. If they are big enough and strong enough, then why wouldn’t they? I was thinking about this as I brought in the cows this morning. The argument against this type of a move has always been that we would be leaving value after us inside Ornua. I think the co-op I supply, Dairygold, own 21%. However, I asked myself the question what good is that value inside Ornua to me now.”

I put it to Bertie that we have no good examples of how Irish businesses competing globally with each other had returned more value to farmers.

“Some time we are going to have to jump out of the Ornua cradle,” he said. “Things must evolve. When Bord Bainne was formed in the 1960s, we were part of a small co-op supplying Clondrohid – that day is long gone. At the time, ICOS had a huge role evolving co-op structure, but again that day is long gone. I’m over 40 years farming now and our industry has evolved much slower than other countries.”

Bertie is clear that there will be pain as co-ops compete.

“There is no doubt there is going to be short-term pain but I honestly think there will be long-term gain. The international model of trading has evolved over the last 20 years. Look around the world – why are others not doing what we are doing? We are standing still as an industry. It’s gone business-to-business – marketing agencies should be gone with 20 years if right was right. The proper thing to do is that Glanbia and Dairygold would come together into a big co-op and all subsume the value within and then go from there.”

Is that not Ornua?

“What profits did Ornua make last year? Around €30m. That’s our money. They are selling our product.”

From your experience as a board member at Ornua, what way do you see it playing out?

“What I saw around the Ornua table was that everyone was playing poker. How the Dairygold board operated was completely different, and unless we are going to break up that poker game, our industry won’t evolve. If Glanbia go down their own road, then there is over 30% gone from Ornua. Will Ornua survive that? And I think they are right. Why should a Glanbia farmer take a secondary price if they can do it themselves?”

I then asked him should we not do our business behind closed doors rather than wiping value off potential revenue for dairy farmers by competing in the same markets?

“Look, everyone is going to mind their own job. Ornua do not agree with the Glanbia strategy but why would they? I agree the tools to make this happen without doing too much damage – is very important. That’s up to the key people sitting around the table to hammer out the deal. What I am surprised about is why it took Glanbia five years to bring it this far, because Glanbia are talking about marketing on their own for a long time now.”

Tom Phelan farms near Mountrath in Co Laois. He is a dairy farmer supplying Glanbia and is current chair of the IFA dairy committee

I’m very concerned. Farmers have invested 60 years with Kerrygold and we don’t want to see the value that has been generated, in this case in the US market for Irish grass-fed cheese, eroded. Anything that would damage the brand long term would not be in the best long-term interests of Irish dairy farmers,” said Tom.

I asked him what can Glanbia do to allay those concerns? Glanbia has been in discussion with Ornua about this for a long time and has decided to take the plunge with a new product into the US. Glanbia says it is making a play on added value for Glanbia suppliers and its stated ambition is not to undercut Kerrygold products – so where is the concern coming from?

Tom was quick to come back in: “Glanbia are significant shareholders in Ornua and they have significant responsibility as key players and directors. We need them to reassure farmers of Ireland, not just Glanbia suppliers, that they are not out to undermine the Kerrygold brand and the market value it has created in the US market and elsewhere.

“History doesn’t play out well on what has gone before when Irish companies start competing with each other.

“We don’t have to look past the home market. Over the last 18 months, European butter prices have been at historically high levels, yet the Irish retail price of butter has been lower than wholesale butter prices anywhere in Europe. You could have bought it on shop shelves, repackaged it and made a margin on export! That’s destroying value for farmers. So while we have heard some comments from Glanbia that they are not out to compete with other Ornua products, the facts of the matter on competition and price tell a very different story.

“Our members are concerned and are demanding assurances and clarity. They have invested 60 years in paying levies and don’t want to see that vanish, nor the price of milk they are paid eroded because value added has been undermined. Glanbia have a proven track record to innovate, but this latest move is challenging for farmers to comprehend and simply must not destroy value.”

Gerald Quain is a Limerick dairy farmer and chair of the ICMSA dairy committee

It can’t be good for dairy farmers if we have two leading companies competing. The dairy farmer loses out if this is the case. This battle between Ornua and Glanbia needs to be sorted out sooner rather than later and farmers are annoyed over the whole thing with milk price at stake. The industry has enough other challenges to deal with such as Brexit besides looking for other distractions. The other real challenge with a move like this is that on the outside looking in, it looks like an attempt by the big player to squeeze the smaller operators.”

Gerald also believes there are changes to the structure and governance of Ornua that would lead to better performance and recognition of dairy farmers.

“We recognise there are challenges in how the Ornua board is constructed and we would prefer direct farmer shareholders in Ornua. We are clear that duplication of sales, office space, etc, is not what we need because essentially this comes off milk price that farmers are receiving.”

The other piece that Gerald was keen to get across is that Ornua needs to broaden the range of products outside of butter and cheese and increase the suite of products that are sold under the Ornua banner.

Comment

The difference of opinion between Glanbia and Ornua on marketing cheese in the US is just the latest in a long line of issues between some of our biggest and best dairy exporters. However, its significance is more extreme as it’s the first time Ornua (Kerrygold) product is directly competing with a similar Irish product offering on the cheese shelf in the US.

Glanbia will not want to undercut the Kerrygold premium available for product in the US. Why would it? However, when competing for shelf space with retail introductions which take the form of price promotions, then price inevitably comes into it. Already we hear that price concessions have been made to hold Kerrygold market share in reaction to the lower-priced new competitor. Farmers are very anxious how this might play out and the potential implications for Kerrygold butter. It’s almost inevitable that Glanbia will continue to evolve the Truly Grass Fed brand and extend the product range. Why go to all the development costs and trouble for a small chunk of the cheese market?

Former Dairygold chair and Ornua board member Bertie O’Leary believes Glanbia are right to do what they did. His point is that, yes, there will be farmer pain (premium reductions to Kerrygold product) in the short term. However, long term, the move is the inevitable next step in the development for a business that now has the resources to sell directly to consumers.

Farm organisations are undoubtedly uneasy and calling on both parties to resolve differences sooner rather than later.

Read more

Editorial: big decisions ahead on future of Kerrygold