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BREXIT AND THE DAIRY INDUSTRY – DISASTER OR OPPORTUNITY?
No matter whether you are of the “glass half full” or “glass half empty” mentality, everyone agrees that Brexit is currently causing uncertainty for the dairy industry.
PRICE
LIQUID MILK-RETAIL P/LITRE CHEDDAR-WHOLESALE £/100KG CHEDDAR-RETAIL £/KG BUTTER-RETAIL £/KG Source: Dairy UK
Average 2013-17 46.00
278.50 5.58 5.60
No matter whether you are of the “glass half full” or “glass half empty” mentality, everyone agrees that Brexit is currently causing uncertainty for the dairy industry.
Dairy industry participants most concerned with Brexit are those who operate within the UK or Ireland, or both, as they have the potential to be impacted greatly. The UK is currently a net importer of dairy products. Rabobank estimates the UK is approximately 77% self-sufficient.
The UK is a net importer of butter and cheese but a net exporter of milk powder.
When the UK splits from the EU it will need to negotiate its own trade agreement with both the EU and its other trading partners. If Free Trade Agreements are not implemented then the UK will be faced with paying the standards tariffs for World Trade Organization (WTO) members.
EU TARIFF AD VALOREM Average 15.97
142.00 1.42 1.61
Equivalent % 35% 51% 25% 29%
The tariffs applicable to the importation of dairy products into the EU under the WTO most favoured nation (MFN) regime are incredibly high and, therefore, prohibitive to the flow of dairy products into the EU.
At this point, the dairy industry participants within the UK are hoping to be able to negotiate an agreement with the EU, which means goods can continue to flow freely between the UK and the EU and, therefore, cause as little disruption to current business arrangements as possible.
Ireland provides about 30% of the dairy produce imported by the UK, with Germany and France also supplying significant quantities. Just 1% of the dairy produce imported into the UK is currently sourced from outside the European Union.
Before the UK became a member of the EU – 40 odd years’ ago – it imported much of its additional dairy requirements from New Zealand. This arrangement hit a massive stumbling block when the UK was required to impose the same tariffs as the rest of the EU – basically making importing dairy products from outside of Europe unprofitable. New Zealand did manage to negotiate a tariff-rate quota but the tariff imposed within the quota was still too high to make regular trade viable.
The original trade with New Zealand was mainly butter, along with some cheese. Due to the high tariffs imposed on imports from outside of the EU, New Zealand diverted its butter trade into other markets. This included pushing a lot more butter into Russia in the 1980’s resulted in one of New Zealand’s most infamous trade deals. Russia eventually settled its butter debts by supplying New Zealand with Lada cars and vodka. The vodka is long gone but some of these Lada’s are still rattling around New Zealand’s backroads.
22 | ADMISI - The Ghost In The Machine | November/December 2017
The articles within this publication, and all opinions and statements by the relevant are those of the author and may not necessarily represent the views of ADMISI or its officers, employees and / or affiliates. The information herein is taken from sources considered to be reliable. However it is intended for the purpose of information only and is not guaranteed by ADMISI or its officers, employees and / or affiliates as to accuracy, completeness, nor its trading result, and does not constitute trading advice or solicitation of purchase or sales of any financial instrument. By continuing to read this publication, you agree to the foregoing terms and conditions and certify that you are qualified to / and understand these terms.
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