Ornua’s Kerrygold hit with €50m in US tariffs in Trump trade war

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Ornua paid around €50m in US tariffs last year after Kerrygold butter got caught up in a long-running transatlantic trade war.

The figure is roughly equivalent to the group’s operating profit in 2019, the year Kerrygold became Ireland’s first billion-euro food brand.

It’s also the number two butter brand in the US, with several million packets sold every week.

“In essence, this was a tariff on Kerrygold,” Ornua’s CEO John Jordan told the Irish Independent.

“It was very targeted by the Trump administration, and the purpose of the tariff was to make us less competitive.

“It is penal and it’s been a tough period.”

Former US president Donald Trump introduced the tariffs in October 2019, after a decades-long battle with the EU over airline subsidies.

Ornua “had no choice but to pass that tariff on in full” to the consumer, Mr Jordan said.

It meant a 25pc price rise, equivalent to around $1 a packet, putting Kerrygold at twice the price (per pound) of US butter.

Despite the triple threat of tariffs, Covid-19 and Brexit, Mr Jordan said the Kerrygold brand saw growth in 2020 “but not the same rate of growth we would have seen if tariffs weren’t there”.

“Our growth has been dampened because of the tariff increases.

“There’s been no big margin windfall for Ornua with the tariffs because the price went up on the shelf.

“In a tariff world, the loser is the consumer, so the American consumer had to pay that money. The benefit went to the US tax revenue.”

The EU and US have agreed to suspend the tariffs for four months, but it’s still a “challenging period” for the company, Mr Jordan said.

“You’re in a very difficult position whereby, over a four-month period, it’s very hard to make changes until we see what the permanent solution will be.”

The company won’t publish its full-year results for 2020 until 21 April, but it has had a “good year” and has managed to keep all of its supply chains intact, Mr Jordan said..

Ornua also expects growth in the UK, where it currently sees 26pc of total sales. Its Pilgrim’s Choice cheddar is now the number two cheese brand there.

The company also packs several British supermarkets’ own-brand cheeses and supplies a number of food processors and wholesalers.

The UK’s decision to postpone the introduction of full customs controls means Irish exporters won’t have to provide extra paperwork and face physical checks at UK ports until at least October.

It’s a welcome respite because “the UK are not ready”, said Mr Jordan.

“The risk was a lack of product on the shelf, and that would really frustrate consumers.”

To pre-empt any shortages, Ornua sent 106 containers of produce over to the UK in the first week of December, meaning exports in January and February have been much lower and allowed the company to get up to speed on the new post-Brexit rules.

We’ve been trying to mitigate the risk of Brexit for four years.

Brexit has also meant an increasing focus on diversifying into Europe.

According to data from consumer trends analysts GfK, Kerrygold’s 250g packet of butter is now the number one product scanned at retail outlets in Germany.

“We scan through faster than Coca-Cola’s biggest selling line,” said Mr Jordan.

In all its markets – the US, UK and Ireland – Kerrygold butter continues to sell at a premium. And that should be good news at the farm gate, Mr Jordan said.

Established in 1961 by the government as An Bord Bainne, Ornua acts as a ‘co-op of co-ops’, buying up supplies from eight others across the country.

Ornua’s monthly Purchase Price Index (PPI) – which shows its market returns on butter, cheese, whole milk powder and other products – rose in January and February, and is almost back to February 2020 levels.

“What we’re trying to do is capture as much value for the product we buy, to give back to co-ops to allow them to pay the best possible milk price,” said Mr Jordan.

His outlook for the rest of the year is “very positive”.

“Brexit is pretty much resolved. US tariffs are suspended and we’d be hopeful that in time they would be removed. Covid has an end in sight and whether that’s two, six or eight months away, there will be a point where we’re all vaccinated and that will be resolved.”