Dairy dilemma: Brexit could lead to butter, yogurt and cheese shortages, warns Arla Foods

19 Jul 2018 --- Arla Foods is warning British consumers will likely face restrictions in dairy supplies once the UK leaves the EU – and this could result in “scare supplies” of highly-priced butter, yogurt and cheese which will be considered “luxury items.” The European-wide dairy cooperative says border breakdown could leave UK consumers with less choice and higher prices.

The Government’s White Paper on the UK’s future relationship with the EU sets out proposals to ease trade between Britain and Europe. However, it still has to be agreed with the EU. As identified in the recent London School of Economics (LSE) report – the impact of Brexit on the UK dairy sector – any friction and limitations on access to key skills will mean that UK consumers pay the price through less choice, higher prices, and potentially lower food standards.

Arla Foods is referring to the findings of this report that, if it proves to be true, could leave the dairy industry in a dilemma in the UK with three potential outcomes.

The first of which is that it will become much more difficult to import dairy products from Europe, leading to a shortage both of dairy staples and particularly of products such as specialty cheeses. Domestic supply is already constrained by limited production capacity in an already tightly-managed supply chain.

The second is about the potential for escalating pressure on costs and ultimately increased consumer prices for dairy goods. Current dairy imports include cheese, butter, butter oil, whey, buttermilk and fermented products, yogurt, concentrated milk, powders, milk and cream, infant formula and ice cream meaning that the impact could be widespread.

And the third is that ways are found to ramp-up production and cut farm costs, which in the short-term at least would inevitably undermine the world-leading standards of the dairy industry – something neither farmers nor consumers would accept, according to Arla Foods. 

These problems could also be exacerbated by a shortage of vets, lorry drivers and farm workers post-Brexit as well as costly impacts throughout the supply chain.

Among the issues caused by non-tariff barriers and unavailability of key labor, the report identifies how there could be increased times for customs inspections at UK ports. For instance, even a seven-minute additional waiting period for each inspection would add 10 hours of delays and additional costs of at least £111 (US$144.83) per container, according to Arla. 

There are also risks of additional delays thanks to asking the UK’s new Customs Declaration Service, designed to handle only 150 million declarations per year, to handle the more than 250 million expected post-Brexit.

Border checks
There also could be further additional costs due to subjecting products of animal origin (POAO) such as dairy to checks at the border – if, indeed, border posts are equipped to do such checks at all.

According to Arla Foods, another “particularly acute challenge” is on the issue of increased veterinary checks at the border, at the same time as the number of vets decreases as a result of Brexit. It says this could lead to a growth in the workload of 372 percent for vets at the border – with “no certainty that the system will continue to function adequately given these additional pressures.”

Arla Foods UK, which is part of a pan-European cooperative owned by around 11,000 farmers, has previously noted that a hard Brexit without a trade deal could have a disastrous impact on this country’s dairy industry and its consumers. 

The probability of the UK and the EU reaching a deal in their negotiations seems to change every day, but this report makes clear that even with an agreement over trade and a ‘softer’ departure from the EU these major issues remain, posing a dilemma for the British dairy industry at large, says Arla.

In April, the dairy cooperative revealed that it would be hit hard by Brexit and needs to make €400 million (US$465 million) in savings partly because of the currency implications of Brexit as well as pressure from commodity prices.

The dairy giant plans to cut €400m (US$493.9m) on costs from its business and has launched an internal transformation program called “Calcium” to do so. The program is set to deliver the savings by the end of 2020, according to Arla Foods, through improved efficiency in all areas of the company. It will also boost the company’s performance to the benefit of its farmer-owners and further strengthen the company’s investment capability.

Ash Amirahmadi, Managing Director for Arla Foods UK ,says that the farmers who own the Arla dairy cooperative already balance keeping consumer prices down with maintaining quality and the best standards, including high animal welfare, so there is very little margin to play within the value chain. 

“Any disruption means that if we don’t get the practicalities of Brexit right, we will face a choice between shortages, extra costs that will inevitably have to be passed on to the consumer or undermining the world-class standards we have worked so hard to achieve,” he says.

The UK has the second largest dairy trade deficit in the world, at up to 16 percent (98 percent of the nation’s dairy imports are of EU origin). That heavy reliance on EU imports means that any problems at the border post-Brexit and shortages of labor in key areas are likely to have a major, and predominantly negative, impact on the domestic market in the form of shortages of products and significantly higher prices, says Arla Foods. 

“Our dependence on imported dairy products means that disruption to the supply chain will have a big impact. Most likely we would see shortages of products and a sharp rise in prices, turning everyday staples, like butter, yogurts, cheese and infant formula, into occasional luxuries. Specialty cheeses, where there are currently limited options for production, may become very scarce,” Amirahmadi continues. 

“It is important to be clear about this: Brexit might bring opportunities to expand the UK industry in the long term, but in the short and medium term we cannot just switch milk production on and off. Increasing the UK’s milk pool and building the infrastructure for us to be self-sufficient in dairy will take years.”

“To protect the British public, we are calling on both sides in the negotiations to be pragmatic and sensible as they address the practicalities of Brexit, allowing us to have frictionless customs arrangements and ready access to key labor in the years ahead.”

The strong comments about the impacts of Brexit on the dairy industry come shortly after the UK food and drink industry says it needs help to “turbocharge” the sector’s exports and restore productivity levels to avoid falling behind other European countries once Britain has left the EU. The Food and Drink Federation (FDF) issued an industry-wide report highlighting the key growth opportunities for the food and drink industry earlier this week, which comes as the industry faces “unparalleled” challenges in the coming years as the market environment remains uncertain, largely as a result of Brexit. 

The FDF realizes there are huge opportunities for the British food and drink sector, but the key is to identify and harness the industry’s growth potential and improve productivity, it says. Read more here.