Any imposition of tariffs on UK exports to the EU once Brexit happens could cause particular issues for the cross-border dairy trade between Ireland and Northern Ireland, a new report by the AHDB has found.
This spells worrying news for Ireland, as the the UK remains a key market for Irish dairy exports, with almost 30% of dairy exports going across the border and the Irish Sea.
Large volumes of milk are exported from the UK to the Republic of Ireland for processing and the report shows that this trade would be threatened if tariffs were put in place.
Furthermore, any of the resulting product which returns to the UK may also be subject to import tariffs, as it is going across the border again, which would almost certainly make this trade uneconomic.
According to the AHDB, while this could have major consequences for the Irish processing sector, there might also be challenges for the UK industry in processing the milk which was previously being exported.
The eventual deal between the UK and EU will be key for the UK dairy industry as the EU currently provides the home for the majority of UK exports.
With milk production expected to return to growth over the coming years, production of commodity products is likely to grow.
However, any tariffs imposed could, therefore, incentivise processors to encourage milk production to stagnate, which Horizon has said depends on deals struck with other nations and buyer interest/competitiveness.
Opportunities for the UK
The main trade-related opportunities of Brexit for the UK dairy industry will focus on displacing imports or growing new export markets.
If the UK manages to negotiate a trade deal with the EU allowing tariff-free access, then the likelihood is for business as usual with the EU.
Experience from the EU would suggest that tariffs may limit the scale of imports of commodity-type products, although speciality products will probably still reach the UK.
Combined with increased supply chain investment, this could see the UK progress as an industry. At present, the UK has two major milk processors, whose dominance could help re-balance the supply chain,which the report has said could lead to an increase in processing investment – if managed correctly.
UK Dairy Exports and Imports
The overall value of exports of dairy products in 2015 amounted to £1.1 billion, figures show and of this, nearly £800m was generated by sales to other EU countries, with £300m in sales to third countries.
Around 90% of UK dairy exports by volume are destined for the EU.
Looking at imports and while the EU accounts for around 99% of total UK dairy imports, the Republic of Ireland is the big player.
Irish butter is used in some branded products as well as in manufactured goods, while cheddar is the main cheese exported from Ireland to the UK.