Over the next few weeks, 15 men will decide the fate of a €500m co-op. The co-op is Ornua and it is owned by Irish dairy farmers.
The 15 men are the board members of Ornua, whose job it is to oversee the running of the business, set the future strategy and represent farmers’ interests. In recent weeks, it ?has been described as being “dysfunctional”.
Dairy farmers have invested heavily into Ornua, most notably through the Ornua levy, but also through the re-investment of Ornua’s profits.
This investment by dairy farmers has created the present-day Ornua – owner of the Kerrygold and Dubliner cheese brands and a multinational company with over 2,000 employees around the world. Ornua made an operating profit of €40m in 2018.
Trade
The thing is, most dairy farmers aren’t aware of what Ornua does or, more importantly, that they [the farmers] actually own it. Ornua is effectively a big trader of Irish dairy.
For the most part, it buys product from processors and sells it overseas. The jewel in the crown is the Kerrygold brand, but it also buys cheese and powders.
On a volume basis, it handles about 50% of the total Irish dairy output.
The future of Ornua is threatened. The first threat is to the Kerrygold brand and the premium that it delivers. The second threat is to the ownership structure
It pays milk processors ?for the produce and sells it on at a premium and generates a margin.
The future of Ornua is threatened. The first threat is to the Kerrygold brand and the premium that it delivers.
The second threat is to the ownership structure. Ornua is currently a co-operative, with the shares in the co-op held by the dairy processors from whom it buys milk.
The proposal by Dairygold would see the co-op convert to an unlisted plc.
Decisions made over the next few weeks could have lasting implications for the future of the Irish dairy industry.
Value
For over 40 years up to 2016, Irish dairy farmers paid a levy to Ornua. The levy amounted to around €7/cow or €700/year for a farmer with 100 cows.
This money was used to build the Kerrygold brand and establish routes to market for dairy products handled by Ornua.
Generating a profit or margin on sales is one function of Ornua, but the other function is to find a route to market for Irish dairy
Profits generated by Ornua were used in two ways; reinvested into the business to allow it to grow and, secondly, given back to farmers through the milk processors.
Generating a profit or margin on sales is one function of Ornua, but the other function is to find a route to market for Irish dairy.
Expand
This has allowed the Irish dairy farmer to expand production in the knowledge that his or her milk will be collected, processed and paid for.
Ornua has sales and marketing teams based all over the world, selling Irish dairy under a united front, even though that milk could have come from Ballaghderreen or Ballyragget.
Ornua says that, on a like-for-like basis, the price it returned to processors in 2018 was 99% of the LTO average
However, only 50% of the total Irish milk pool is traded with Ornua. Most milk processors that supply to Ornua have developed their own sales teams who effectively compete with Ornua to sell the rest of their products.
Is Ornua any good at selling Irish dairy? The best way to look at this is through the LTO international milk price comparison analysed by the Dutch Federation of Agriculture and Horticulture.
Ornua says that, on a like-for-like basis, the price it returned to processors in 2018 was 99% of the LTO average. The three Irish processors in the LTO table – Kerry, Glanbia and Dairygold – delivered 94% of the LTO average.
In terms of profitability, Ornua made a profit of €40m in 2018.
For a typical farmer with 100 cows, this works out at a return of €28/cow or €2,857 in total.
Of this, €19m (€14/cow and €1,400/farm) was returned directly to farmers as a dividend through their processor.
The Kerrygold butter brand returns €18m in extra profits annually, which is almost 50% of the total profits at Ornua for 2018.
For a farmer with 100 cows, this represents a return of 183% per year on the annual levy ?if it was still being collected.
Key questions
There are a number of questions Irish dairy farmers should be asking themselves:
Will they benefit more from a stronger or a weaker Ornua? Who stands to gain most from changes to the Ornua structure? Is it wise to have so many CEOs on the board of Ornua? Will the board act in the best long-term interests of dairy farmers when making such big changes at Ornua?We asked four dairy farmers for their views on Ornua and the proposed changes. The three questions we asked were as follows:
1. Do you think that there’s value in Ornua for Irish farmers?2. Are farmers engaged enough on the issues at Ornua?3. What do you think of the current proposals to change Ornua?Their answers to each question are outlined above.
Mike Magan, Co Longford
1. Ornua is one of the success stories of Irish dairy and the development of the Kerrygold brand has been of huge benefit to Irish farmers.
2. They’re not engaged enough. I think there’s a lack of understanding of the role of Ornua. Effectively, it’s a co-op of co-ops, so is a bit removed from farmers and when the levy was stopped, the link was further removed.
3. I wouldn’t agree with everything in them, but I think it’s great that we are now having a discussion about Ornua. It’s a once-in-a-generation opportunity to make real change, so we need to get it right. Any imminent moves need to be stalled so farmers have time to get informed and for Brexit to settle.
Kevin Twomey, Co Cork
1. Yes.
2. No, farmers aren’t engaged at all. Ornua is seen as a third party. We’re told we own Ornua but really we’re second-hand owners, as we’re too removed to be engaged.
3. I don’t think we’ve enough information. Some of them look interesting. I do think there needs to be radical change and now is a good opportunity, especially when the board is discussing it. An unlisted plc is an interesting thought, I’m not keen on a full plc, but neither do I think that a co-op of co-ops is working well either. The structure of the company does need to change and the people on the board that are seriously conflicted need to change also.
Alan Hughes, Co Carlow
1. Absolutely and Ornua should have an even bigger role in the future.
2. Farmers aren’t engaged enough. It’s like there’s a link missing between the farmer and Ornua. There’s a lack of knowledge about who sells the milk after it leaves the plant. I don’t know if it’s because farmers are too busy or just not interested.
3. I’d be worried about the plc model. I think the underlying issues won’t be resolved even if the structure changes. We have some processors selling nearly all of their milk through Ornua and others selling less than a third of their milk. They’re competing against each other before they ever compete with real competitors.
Sean O’Donnell, Co Mayo
1. Absolutely, Ornua has delivered one of the most recognisable brands created in Ireland and has benefitted Irish farmers in low milk price years.
2. No, we’re poorly informed and that’s why we’re not engaged. Maybe that’s been the strategy all along? If your co-op sits on the Ornua board, then they owe it to us to deliver the reality of what’s going on, warts and all.
3. I’m not sure going down the plc route is the best long-term strategy for a farmer-owned co-op. While the initial spin-out payment would be welcomed, the real value for me is Ornua as a co-op and in having a link back to the primary producer. ?Governance is probably the biggest issue.
Over the next few weeks, 15 men will decide the fate of a €500m co-op. The co-op is Ornua and it is owned by Irish dairy farmers.
The 15 men are the board members of Ornua, whose job it is to oversee the running of the business, set the future strategy and represent farmers’ interests. In recent weeks, it ?has been described as being “dysfunctional”.
Dairy farmers have invested heavily into Ornua, most notably through the Ornua levy, but also through the re-investment of Ornua’s profits.
This investment by dairy farmers has created the present-day Ornua – owner of the Kerrygold and Dubliner cheese brands and a multinational company with over 2,000 employees around the world. Ornua made an operating profit of €40m in 2018.
Trade
The thing is, most dairy farmers aren’t aware of what Ornua does or, more importantly, that they [the farmers] actually own it. Ornua is effectively a big trader of Irish dairy.
For the most part, it buys product from processors and sells it overseas. The jewel in the crown is the Kerrygold brand, but it also buys cheese and powders.
On a volume basis, it handles about 50% of the total Irish dairy output.
The future of Ornua is threatened. The first threat is to the Kerrygold brand and the premium that it delivers. The second threat is to the ownership structure
It pays milk processors ?for the produce and sells it on at a premium and generates a margin.
The future of Ornua is threatened. The first threat is to the Kerrygold brand and the premium that it delivers.
The second threat is to the ownership structure. Ornua is currently a co-operative, with the shares in the co-op held by the dairy processors from whom it buys milk.
The proposal by Dairygold would see the co-op convert to an unlisted plc.
Decisions made over the next few weeks could have lasting implications for the future of the Irish dairy industry.
Value
For over 40 years up to 2016, Irish dairy farmers paid a levy to Ornua. The levy amounted to around €7/cow or €700/year for a farmer with 100 cows.
This money was used to build the Kerrygold brand and establish routes to market for dairy products handled by Ornua.
Generating a profit or margin on sales is one function of Ornua, but the other function is to find a route to market for Irish dairy
Profits generated by Ornua were used in two ways; reinvested into the business to allow it to grow and, secondly, given back to farmers through the milk processors.
Generating a profit or margin on sales is one function of Ornua, but the other function is to find a route to market for Irish dairy.
Expand
This has allowed the Irish dairy farmer to expand production in the knowledge that his or her milk will be collected, processed and paid for.
Ornua has sales and marketing teams based all over the world, selling Irish dairy under a united front, even though that milk could have come from Ballaghderreen or Ballyragget.
Ornua says that, on a like-for-like basis, the price it returned to processors in 2018 was 99% of the LTO average
However, only 50% of the total Irish milk pool is traded with Ornua. Most milk processors that supply to Ornua have developed their own sales teams who effectively compete with Ornua to sell the rest of their products.
Is Ornua any good at selling Irish dairy? The best way to look at this is through the LTO international milk price comparison analysed by the Dutch Federation of Agriculture and Horticulture.
Ornua says that, on a like-for-like basis, the price it returned to processors in 2018 was 99% of the LTO average. The three Irish processors in the LTO table – Kerry, Glanbia and Dairygold – delivered 94% of the LTO average.
In terms of profitability, Ornua made a profit of €40m in 2018.
For a typical farmer with 100 cows, this works out at a return of €28/cow or €2,857 in total.
Of this, €19m (€14/cow and €1,400/farm) was returned directly to farmers as a dividend through their processor.
The Kerrygold butter brand returns €18m in extra profits annually, which is almost 50% of the total profits at Ornua for 2018.
For a farmer with 100 cows, this represents a return of 183% per year on the annual levy ?if it was still being collected.
Key questions
There are a number of questions Irish dairy farmers should be asking themselves:
Will they benefit more from a stronger or a weaker Ornua? Who stands to gain most from changes to the Ornua structure? Is it wise to have so many CEOs on the board of Ornua? Will the board act in the best long-term interests of dairy farmers when making such big changes at Ornua?We asked four dairy farmers for their views on Ornua and the proposed changes. The three questions we asked were as follows:
1. Do you think that there’s value in Ornua for Irish farmers?2. Are farmers engaged enough on the issues at Ornua?3. What do you think of the current proposals to change Ornua?Their answers to each question are outlined above.
Mike Magan, Co Longford
1. Ornua is one of the success stories of Irish dairy and the development of the Kerrygold brand has been of huge benefit to Irish farmers.
2. They’re not engaged enough. I think there’s a lack of understanding of the role of Ornua. Effectively, it’s a co-op of co-ops, so is a bit removed from farmers and when the levy was stopped, the link was further removed.
3. I wouldn’t agree with everything in them, but I think it’s great that we are now having a discussion about Ornua. It’s a once-in-a-generation opportunity to make real change, so we need to get it right. Any imminent moves need to be stalled so farmers have time to get informed and for Brexit to settle.
Kevin Twomey, Co Cork
1. Yes.
2. No, farmers aren’t engaged at all. Ornua is seen as a third party. We’re told we own Ornua but really we’re second-hand owners, as we’re too removed to be engaged.
3. I don’t think we’ve enough information. Some of them look interesting. I do think there needs to be radical change and now is a good opportunity, especially when the board is discussing it. An unlisted plc is an interesting thought, I’m not keen on a full plc, but neither do I think that a co-op of co-ops is working well either. The structure of the company does need to change and the people on the board that are seriously conflicted need to change also.
Alan Hughes, Co Carlow
1. Absolutely and Ornua should have an even bigger role in the future.
2. Farmers aren’t engaged enough. It’s like there’s a link missing between the farmer and Ornua. There’s a lack of knowledge about who sells the milk after it leaves the plant. I don’t know if it’s because farmers are too busy or just not interested.
3. I’d be worried about the plc model. I think the underlying issues won’t be resolved even if the structure changes. We have some processors selling nearly all of their milk through Ornua and others selling less than a third of their milk. They’re competing against each other before they ever compete with real competitors.
Sean O’Donnell, Co Mayo
1. Absolutely, Ornua has delivered one of the most recognisable brands created in Ireland and has benefitted Irish farmers in low milk price years.
2. No, we’re poorly informed and that’s why we’re not engaged. Maybe that’s been the strategy all along? If your co-op sits on the Ornua board, then they owe it to us to deliver the reality of what’s going on, warts and all.
3. I’m not sure going down the plc route is the best long-term strategy for a farmer-owned co-op. While the initial spin-out payment would be welcomed, the real value for me is Ornua as a co-op and in having a link back to the primary producer. ?Governance is probably the biggest issue.
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