Tirlán prospers

Tirlán’s 2022 financial results, published last month, mirrored the historically high milk and grain prices that were achieved last year. Despite the challenges of the war in Ukraine, high input prices and global inflation, it was a strong year, Jim says. “It was fortunate that international dairy markets were strong and provided a return that covered high on-farm costs. Our revenues went over €3bn for the first time. We made a profit after tax of €44.6m, which is a margin of one and a half per cent.”

Falling milk prices

But it is hard to escape the new milk-price reality and the consequences of that: “Last year we paid 63c/L actual price, which was considerably higher than anything we had seen previously. In grain, we paid €310/t for barley, again the highest price ever paid. There is now a huge level of angst among our farmers because of milk and grain price drops in recent months. That’s very understandable.
“The price of green grain fell below €200/t, while the margin on milk production is wafer-thin. We’re seeing some markets stabilise. We think cheese prices, for example, have bottomed out. Butter is still weak, but we’re hoping that it has hit a base level. The gross return on dairy products is between 40c/L and 45c/L before processing costs. We can’t hold back the tide in terms of the markets, but we’ll do everything we possibly can to pay the strongest price and to support our farmers.”

Fixing fixed-milk price

Fixed milk pricing has been a big bone of contention for some exposed Tirlán suppliers. Jim outlines the actions taken to provide relief: “Last year, this was the biggest issue for a group of our farmers and a huge amount of time was given over to it. We spent €22m in supporting those suppliers with offers and schemes that would help them to shore up the gap between the price that was available to suppliers, generally, and those caught with a lot of milk in fixed-price contracts. Fixed-price volumes in the current year are in low single digits as a percentage of the overall pool. We must be fair to everybody. We can’t find ourselves in a position where we are paying a higher price to fixed-price suppliers than to our open-market producers.” Despite the recent fixed-price tribulations, Jim does not rule out further programmes: “Hedging high-risk inputs or outputs whether that’s feed, energy, or, in this case, milk, is part of the world that we are in. There’s a huge amount of speculation on gas, oil, energy, and on commodities. We will have to be very careful about managing those variables into the future. Where risk-mitigation tools can be used, we should use them.”

Future prospects

“We’re going into a different era. We’ve had 83 per cent growth since 2014. We’re now into a situation where the environmental context is far more stringent, but there is significant opportunity for productivity improvement, whether that’s in breeding or management. I believe we will have moderate growth and there’s a lot to play out in the whole environmental policy side of it, both opportunity and challenge. We want new entrants because youth and renewal are critical for everybody, every family, every club, every school, and we will encourage that. But we will have a greater balance between milk growth and environmental restriction.”

Fresh milk reality

“We have three business categories. Our ingredients category is a €2bn business with exports to 100 countries. Revenue went up by 40 per cent last year. Revenue in our agri-business, providing farm inputs, went up by 40 per cent. Input costs to our farmers also went up by 40 per cent. On the other hand, revenue in our domestic consumer business, fresh milk and other dairy products, went up by 10 per cent. There was no big price inflation on the processing side. Because international prices have come back, there’s a belief that domestic consumer prices should have come back as well. It simply hasn’t happened that way.”

Dog-eat-dog butter market

The somewhat contentious Tirlán entry into the US butter market elicits this response: “Our Truly Grass Fed product in the US is a single brand and what we’re doing is brand building within it. There are two elements. One is the business-to-business side, which is us selling to ingredient customers, and the second element is selling on the retail shelves. The business-to-business aspect has really taken off. The retail business is much tougher. It’s dog-eat-dog, fighting for distribution and shelf space and it has been a much slower burn.” And in that fight, is Ornua the other dog? “It’s not, no,” he says. “To be fair, there’s lots of space for Irish product in the US. Ornua’s Kerrygold is the number-two brand there, and we are very much targeting the organic-credentials-based segments. The more brands you have, the more you grow the category. We’ve learned that from Irish whiskey.”
But does it not have to be price driven? “No. The credentials are critical. We have a team that’s tracking Truly Grass Fed all the way from production through collection and processing, how it’s packed and how it gets to the shelf. We must be able to stand over our product. It’s non-GMO-product verified, and animal-welfare approved. Those credentials are very important. We’re targeting the foodie who is interested in those credentials and will pay more for high margin products.”

ESG officer

"The appointment of Dr Lisa Koep as Tirlán’s environmental and social governance (ESG) officer is at the heart of the company’s future strategy, explains Jim. “We’re very much focused on two things. One is the balance within sustainability for our farmers. Not alone are there restrictions and demands for compliance but in tandem with that, there are opportunities for income because our farmers own the land.

"They can generate other incomes, for instance, from renewable energy sources. As we go along, we will find that there is a balance for our farmers that’s going to present opportunity and challenge. Our approach in terms of policy and regulation will be to accelerate the opportunities for our farmers so that we can see a balance between more compliance on one side and not having the same growth opportunities, while having opportunity on the other side.
“Farmers are practical. They adapted through the 1970s to the end of quotas and they have grasped the growth opportunities since 2015. Now, we will adapt to the sustainability era. The whole ESG strategy is to provide opportunities as well as manage the challenges ahead.”