Opinion: Impact of Brexit on dairy nearly 3 years on

Disclaimer: The following article is an opinion piece. This article represents the personal views and perspectives of the author and does not necessarily reflect the opinions or positions of Fonterra. Readers are encouraged to verify any claim or statement made below for themselves and Fonterra is not responsible for any decisions taken in reliance on the same.

Most people in Britain would remember Christmas Eve in 2020 vividly. Not only for the usual last-minute gift-wrapping chaos, but more for the trade chaos that they were narrowly avoiding as the EU and the UK, with a looming deadline of 31 December that year, agreed that as the UK left the EU permanently on account of its Brexit decision, the two partners would continue to trade without tariffs (or duties) on products traded between them.

At the end of this year, 2023, it will be almost three years since the Brexit agreement was inked. What has the effect been of Brexit on trade (and in particular dairy trade) between the UK (the world’s second-largest dairy net importer) and the EU (the world’s largest dairy exporter)? Has it been plain sailing since then?

In the first weeks and months following the Brexit agreement, a number of issues arose and arose quickly.

Products were not flowing as easily as had been promised – with 1 in 10 trucks at the UK/EU border apparently being turned back for lack of correct paperwork.¹

UK dairy operators scrambled to set up European trading entities and adjust to a ‘new normal’, where they were no longer on an even playing field with continental competitors. Some had fears of food shortages and many small businesses trading in perishable goods reportedly suffered huge losses (with some swallowed up by larger companies better equipped to deal with rising costs or even forced out of business).

The UK’s chief negotiator, Michael Gove, acknowledged these problems, but compared them to a plane’s turbulence during take-off, admitting: ‘We’re not at the gin and tonic and peanuts stage yet’.²

So now almost 3 years in, has the seatbelt sign been switched off yet?

The paperwork and trucking congestion now largely appear to have been ironed out– although the UK has recently announced its own border operating model (Target Operating Model or TOM) for which details as at May 2023 are rather light and may cause some initial bedding-in issues again. One example would be the categorising of ‘risk’ for animal products, where certain EU cheeses would be deemed at higher risk than others and therefore require different paperwork at the border.

The Northern Ireland situation has been an ongoing dilemma for the UK and the EU –with disagreement between them on how to manage the flow of goods between the EU and Northern Ireland without effectively imposing a border and thereby complicating the all-important Good Friday Agreement. We now have the Windsor Framework in place which was agreed earlier this year as a way forward, but again this still needs to be completely ironed out.

Looking at the trade numbers paints a picture too. There are, of course, other significant factors in play here as well that have had their own effects on trade over this time (including COVID-19, the Russian invasion of Ukraine and inflationary pressures, to name a few). 

Nevertheless, we do see the initial drop in volumes after Brexit now coming back to levels that more closely resemble historic trade figures in dairy between the EU and the UK (refer to Figure 1).

Figure 1:

Source: Department for Environment, Food & Rural Affairs (UK)

The UK has a significant domestic dairy industry, with 1,154 million kilograms of milk solids (kg MS) collected in 2022 (compared with New Zealand’s 1,845 million kg MS).³

Despite this local milk pool, dairy’s enduring popularity with consumers in the British Isles means the UK needs to supplement their production each year, accounting for 4% of global imports in 2022 (on par with Japan, The Philippines and the EU27).⁴

It is not all negative though. Putting aside how disruptive trade would have become had no agreement been reached that Christmas Eve in 2020, the UK has been busy seeking its own trade agreements – notably those with New Zealand and Australia. This creates a great opportunity both for the UK and those partner countries to build new supply partnerships in both markets, including opening smoother trade channels for products of real value to UK consumers (offering an increased choice of imported goods that have world-leading sustainability credentials, and the highest food safety and quality) – a real positive for the UK dairy market overall to have an alternative to imports from the EU.

We are seeing encouraging signs that lower carbon, grass-fed dairy ingredients, are an ever more valuable calling card – further enhancing the quality of access these new trade deals provide.