Whether the UK’s exit from the EU will be as disruptive to global dairy trade as its entry was is yet to be determined.
Ireland accounts for approximately two thirds of the dairy products exported from the UK. Just 10% of the dairy products exported from the UK is shipped further afield than the rest of the EU. Outside of the EU the UK’s largest trading partners for dairy products are China, which buys milk powder, and United States, which has developed a taste for UK cheese.
Exiting the EU provides an opportunity for the UK to negotiate its own trade agreements with its other trade partners. The UK may be able to negotiate more favourable terms that it currently has to both export its produce and import products. However, the UK industry appears to mainly have the interests of its farmers and processors at the foreground rather than its consumers. Protection of its own farming industry is paramount, so it is most likely that the UK will continue to impose high tariffs on imports.
New Zealand is very well practiced at negotiating trade agreements, so a deal may be hatched between the two countries that improves the terms of trade from a New Zealand perspective. But as the UK has had the sense to employ a Kiwi to head its trade negotiation team, any deal agreed will have to be favourable to both parties.
One of the challenges that the UK dairy industry faces with Brexit is how Northern Ireland will have to adapt. A lot of liquid milk sloshes across the border between the Republic of Ireland and Northern Ireland. Processed dairy products also move both ways across that border and many dairy companies operate in both Northern Ireland and the Republic of Ireland.
There has been considerable expansion in processing capacity in Ireland since the removal of milk quotas. Some of this investment in processing capacity is currently reliant on milk that is produced in Northern Ireland.
Another challenge for the industry is that Brexit will reduce the supply of farm labourers. Over half of the dairy farms in the UK employ Europeans to carry out the manual, but skilled, tasks which are not deemed attractive by many locals. The labour shortage may drive some automation and efficiency at the farm level but this will require farm owners to have sufficient confidence to invest in innovation.
The uncertainty that Brexit places on the dairy industry will negatively impact market confidence and, therefore, investments are likely to be curtailed at both the farm and processing levels.
Susan Kilsby E:
susan.kilsby@
nzx.com T: +64 272962894
23 | ADMISI - The Ghost In The Machine | November/December 2017
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