Dairies facing €55m UK export hit if no-deal Brexit tariffs enforced
Kerrygold owner Ornua has said it faces an extra €23m in export costs into the UK market in the event of a crash-out Brexit where harsh tariffs are imposed.
Across the dairy sector the tariff hit will be €55m, he said.
John Jordan, CEO of Ireland’s largest exporter of dairy products, warned the challenge will be “competitiveness” in the UK marketplace, with “significant” consumer inflation expected.
In terms of Brexit exposure he outlined that Ornua was facing a 6-8pc increase in the cost base in the case of a ‘no-tariff’ Brexit.
“That will be very difficult to recover from the marketplace,” said Mr Jordan as he unveiled his first Ornua annual report since becoming chief executive.
He said it was “disappointing” that Brexit was going so close to the wire, with 18pc of the group’s sales in value terms going into the UK.
Ornua trading and ingredients managing director Joe Collins said global demand in 2019 was set to grow by between 1pc to 1.5pc.
But he said dairy prices were extremely volatile. “Within dairy, butter has actually been the most volatile commodity in the world, even more volatile than even oil.
“It has swung around by around 65pc from highs to lows in the last 12 months,” he said, adding the trade wars and Brexit have added to that unpredictability.
Meanwhile, Mr Jordan said UK retailers do not want to see price inflation but it was “inevitable” in a Brexit scenario where they import so much of their produce.
It comes as Ornua revealed a boost in both revenue and operating profits, with Kerrygold butter recording a “stand-out” year as the number two butter brand in the US, delivering 25pc volume growth with 2.6 million packets sold a week.
Overall group turnover reached €2.1bn, with an operating profit of €40.4m, up almost 15pc year-on-year.
The harsh spring weather followed by drought conditions later in 2018, combined with Brexit planning, saw the group carrying additional stock over the year-end which brought debt to €110.1m.
Mr Jordan highlighted that it recorded a strong trading performance in a year marked by highly volatile butter prices, drought conditions in Europe, economic uncertainty due to Brexit and global trade wars.
Ornua, which is owned by the Irish dairy processors, purchased 570 million litres of milk equivalent under fixed-price contracts which helped co-ops protect dairy farmers against volatility. It paid a total members’ bonus to the co-op owners of €19m, up 27pc year-on-year.
Mr Jordan highlighted that after 25 years of investment in the Kerrygold brand it now sells faster than any other food or drink brand in the German retail market. It is the number one butter and cheddar brand in Germany, with cheddar volumes up 31pc in 2018.
However, Mr Jordan stressed that Ireland’s nearest neighbours will remain a strategically important market for Ireland’s largest exporter of dairy products.
The UK would also face extra costs on its exports in the case of a no-deal Brexit, with much of its cheddar and butter exports destined for continental Europe and North Africa.
“We believe we can capture a share of that volume, but we are not choosing to take that business today because we believe we have better returns out of the UK as it stands,” said Mr Jordan.
Figures yesterday showed retail prices in the UK recorded the biggest rise in six years in March.
The driving force behind this increase was an acceleration in food prices, the British Retail Consortium (BRC) said on Wednesday. Food prices rose 2.5pc on the year last month compared with a rate of 1.6pc the month before.
Non-perishable food prices rose at the highest rate since February 2013
With continuing Brexit uncertainty, upward risks to inflation would persist, said BRC chief executive Helen Dickinson.
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