The UK’s less intensive dairy sector, and the good global outlook for dairy generally, leaves that sector in a good place to benefit from the new deal on food and drink trade between the country and the EU.
That’s according to John Lancaster, a dairy market analyst for financial services company Stone X.
In May, the EU and UK came to a new agreement on sanitary and phytosanitary (SPS) rules, which governs the import and export of plant and animals products.
The SPS agreement will see the UK and the EU “work towards establishing a common sanitary and phytosanitary area”. It s understood that this will kick-in in 2027.
This would result in the “vast majority of movements of animals, animal products, plants, and plant products between Great Britain and the European Union” being undertaken without much of the SPS certificates or controls that are currently required.
Lancaster, who is the head of dairy and food consulting in the EMEA (Europe, Middle East, Africa) region for Stone X, said that the deal is “a long time coming”, as the UK dairy industry has been very vocal about trying to get an SPS deal in place.
SPS challenges for dairy
Speaking to Agriland, Lancaster said the lack of an agreement on SPS rules has “been a major impediment in the export of dairy products, particularly from the UK into the EU”.
“On the UK side, you have the attempt, or at least they were talking about, implementing the full SPS rules and the full checking rules at different stages, but they have never actually been fully implemented.
“So it’s been much more restrictive for UK exporters to send product to Europe than it has for European exporters to send product to the UK…particularly for short shelf-life products,” Lancaster said.
Despite UK milk production seeing very strong growth since late last year – up 7% to 8% on certain weeks compared to the same seek 12 months earlier – with very strong milk collections, the country does not necessarily have enough processing capacity when needed, Lancaster explained.
He noted that, in some parts of Scotland in recent months, there were cases of farmers dumping milk that processors could not collect.
“That’s symptomatic of a bigger problem. You need these channels to be able to release volume like that, and historically one of the channels, particularly for cream, was into continental Europe, so into France, Belgium and the Netherlands.”
Lancaster explained that the previous SPS regime, which the new deal is looking to address, hampered movement of products with short-shelf life.
“Cream in particular is obviously a very short shelf-life product, so it’s milk that’s gone into the plant, been separated, and the cream is tankered over to…wherever it’s needed, in this case going over to continental Europe.
“After Brexit, that became really tricky because the paper work is pretty onerous. There can be pages and pages and pages on the SPS,” he said.
“Every single load has to be checked for paperwork, and there is sampling done for 30% of the load so it is pretty onerous,” he added.
“The French authorities in particular were very picky with paperwork in the early stages, so there could be a one-line item that’s wrong, [or a] signature in the wrong place, and a load would be rejected, or just not be allowed to board the boat, and then you’ve got a tanker stuck at customs, with product going off.”
According to Lancaster, that regulatory regime hindered the amount of liquid milk, cream and skimmed milk concentrate (particularly the latter two products) that can be exported to the continent.
The Stone X analyst explained that, as a knock-on effect, this lack of accessibility to the continent for short shelf-life product has been putting downward pressure on milk price, meaning lower returns for farmers.
Some UK artisan producers, producing considerably smaller volumes than major UK dairy processors, have simply left the continental market altogether, as the level of paperwork related to SPS is similar, even though the load of product being sent to the continent is much smaller.
Advantages for UK
For these reasons, according to Lancaster, the UK side will see the greatest benefits from the new deal, although there will be some advantages for the EU, particularly in resolving some “headaches” that have existed in relations to the situation between Ireland and Northern Ireland.
“But most of the major advantages are on the UK side. Which is why, as part of that – we’re calling it a deal – but it’s really just an agreement to try to make a deal going forward, agreement over fisheries and things.
“So the UK gave up a little bit on that and the EU gave up on the SPS zone a little bit,” Lancaster said.
According to the dairy market analyst, there was “definitely a lack of political will” on the part of the UK to get a deal such as this done sooner, due in part to what he called a “Brexit hangover”.
“No political party, particularly the Tories [Conservative Party], wanted to grasp the nettle of saying ‘this hasn’t really worked out as well as we hoped it would, therefore we need to bring closer relations back with Europe’,” Lancaster said.
He indicated that the prospect of wide-ranging tariffs coming from the US administration of Donald Trump provided the UK government with the “political cover” to get this new deal over the line, due to the perceived need now for the UK to strengthen ties with its neighbours.
Dairy growth
Lancaster noted that the dairy industry in the UK has historically been less intensive than the likes of The Netherlands or Ireland, and even the sector in Britain has been less intensive than in Northern Ireland.
“There is capacity there for the UK to grow milk collections, and we’ve seen it this year. It’s a combination of the weather, of the good milk pay-out price, of the low feed input costs. But if there is margin there I think there is capacity for the UK to grow,” he said.
“They’re not as restricted with nitrates on the environmental side of things, not because they’re not in the EU but more so because of the generally less intensive animal agriculture situation in the UK.
“So I think among UK farmers there is an appetite to grow and to add to milk production. And climatically they’re in a good zone for grass growth, similar to [Ireland], north-western France, The Netherlands, and Belgium, so they are in a good climate zone for that,” Lancaster said.
He added: “You have restrictions on growth and even negative growth in other parts of Europe, so The Netherlands, Germany, Ireland, etc., are either going to [see] very low growth or even potentially decreasing milk volumes going forward.”
Although there is not the same kind of “pent-up” appetite for growth in the UK as there was in Ireland before the abolition of milk quotas – as UK production was never really constrained by quotas – the current outlook for dairy farming globally puts UK dairy farmers in a position to increase their margins, according to Lancaster’s analysis.
