Ornua is Ireland’s largest co-op. In one way, it is the umbrella co-op for all our dairy co-ops. The Irish way of uniting the milk processors. It’s about sharing the ownership of the Kerrygold brand. Kerrygold is ultimately owned by Irish milk suppliers through their co-op.

After listening to management and reading the 2024 annual report, in one way I can’t help but get the sense that Ornua needs something new to bite on. However successful it has been to date, it all seems to be a bit steady.

So, what does steady look like? For the last three years, revenues have stabilised at €3.4bn, an average EBITDA of €84.1m and an average operating profit of €51m.

Operating profits as a percentage of turnover lifted to 3% in 2020 and 2021. However, for the last three years, they were back to average 1.5% per year. If ‘steady’ was the only criticism, then the Ornua management team and its members might accept it – rinse, repeat and move on.

Toe in the water

For years we have been talking about sweating the Kerrygold brand more – extending it, scaling it, and reinventing it. The Ornua team is dipping a toe in the water, developing a flavoured cream cheese product under the Kerrygold brand.

Ornua CEO Conor Galvin seemed cautious to overplay the significance of the product, highlighting the length of time and investment it took Kerrygold butter to become a leading brand.

Kerrygold – it’s our single biggest ‘price premium achiever’ on the dairy side of the house. Many of the other agri sectors would love to have a brand like Kerrygold. It brings premium price to a commodity product.

What of the other positives? Ornua does bring scale and co-ordination at a global market level. Yes, it still has to compete and defend itself against product from some of its members in the market. This comes at a cost and a constant brand reinforcement investment.

It has taken control of packaging and butter production.

I clearly remember not too long ago the then Ornua chief executive standing up at a dairy conference to say that Ornua would ‘not’ be getting involved in processing product in Ireland. Now Kerrygold Park in Michelstown has been established and expanded and is one of the shining lights in the Ornua armoury.

Legacy

It allows for controlled new product development, an ability to change and diversify, and ultimate control over product quality. Established routes to market are what any product needs and Kerrygold has that. Its tentacles go far wider than the US and Germany.

So, what’s holding it back? A legacy remit in butter and cheese is maybe partly to blame. There are certain high-value products in the dairy chain that member co-ops want to trade and market themselves. That excludes the likes of Ornua getting involved in the modern, high-value protein space that is experiencing huge revenue and profit gains at the moment.

Its two biggest market outlets are Germany and the US. With the prospect of increased US tariffs, there is real potential for revenues and margins to slip backwards. Ornua Germany had a challenging year in 2024 as a weakened German economy continued to adversely impact German consumer confidence.

There are also headwinds on Irish milk supply. Any further nitrates restrictions could undermine the very basis of this premium grass-fed product.

While Ornua brings scale, it is nothing like the scale some of the larger EU co-operatives are establishing. Similarly, the scale and efficiency of milk processing under construction in the US is phenomenal. US processors are pumping billions into developing cost-efficient processing plants.

Existing expertise

Is there a future in Ornua partnering with some of the Irish co-ops on certain products? Is that a way of circumventing the convoluted Ornua governance structure with two boards? Is partnering the way of utilising the existing expertise in Ornua? Having said all that, Ornua has spent years selling non-core businesses so it doesn’t get distracted by the distractions. The cost of doing business is increasing.

Ornua is in the middle of a mid-term review of strategy. Key markets are under threat. Milk suppliers depend on a sharp, scaled and innovative Ornua to underpin revenues.