Hard Brexit will hurt dairy sector

Britain is a net importer of dairy products. In 2015, 77% of all dairy consumed was produced domestically. The rest is imported. The Irish account for approximately a third of that import. The Netherlands exported €250 million worth of dairy to the British last year. That is just over 2% of the total export value of dairy from our country.

Export in danger?
The export of breeding and production cattle in recent years has been between 2.000 and 4.000 head. This is highly dependent on supply and demand and alternatives in the market. It is therefore quite difficult to say to what extent Brexit will have a negative impact on this. However, cost-increasing measures certainly do not help.

Rising costs due to Brexit will likely put pressure on the export of dairy and breeding livestock. Customs stops and extra rules surrounding veterinary appointments quickly lead to 8% more costs, according to calculations. In addition, there is the loss of time that a break in free trade entails.

British agricultural organizations have been advocating for the introduction of free trade agreements with EU countries for some time now. While we have to fear loss of income from exports, this is of course even more important for the British themselves. Entrepreneurs in Great Britain are losing their right to CAP income. According to Rabobank calculations, this represents an average of 7% of the income on British dairy farms. The government there previously agreed to compensate this loss, but the question is how many years it can and wants to keep that promise.

Import levies are important
Import duties can also cause significantly higher costs for the Dutch dairy sector. On average, the import tariff on dairy products within the World Trade Organization (WTO) is 40%. No one within the British dairy world or in Brussels believes that the tariffs will be set so high by the UK, but given the current value of Dutch exports of €250 million, with a levy of 20%, the damage would still amount to €50 million per year . Added to this is the depreciation of the British pound. This results in less purchasing power among the British for products from outside.

The extent of the problems and damage will only become clear at the end of October. Brexit will then be discussed in the European Council. Little clarity can be expected before then, says Klaas Johan Osinga, who is monitoring developments from Brussels on behalf of LTO. "Strong language could be expected from Germany, but Merkel will probably keep quiet about this theme until the German elections on September 24," he believes.

Osinga states that if Brexit goes ahead, a 'soft' implementation is of great importance for the sector. In concrete terms, this means a transition period of several years, during which current agreements flow into new agreements.

The consequences will only really be felt in the event of a hard Brexit. The dairy industry will suffer directly and indirectly. Directly due to the higher costs and indirectly because the dairy, which now goes to the British from various countries, then partly enters the world market as an additional supply. This is expected to have a negative effect on price formation.