In many ways, the dairy industry is the jewel in the crown of UK agriculture. Traditionally, the dairy farm, often at the heart of the village, is seen as the link between those of us who farm and those of us who do not. As can seen from the figure below, dairy is one part of British agriculture where we are just about self sufficient. The sector is dominated by liquid milk sales – the vast bulk of it being consumed by the home market.
On the left hand side of the graph, production of raw milk slightly exceeds that of consumption, the difference made up by a (relatively) small net export market. Looking at the other products of butter, cheese and so on, it may be thought that these are relatively unimportant. But as with livestock outlined in Part 1 of this series, minor adjustments in demand in any of these apparently smaller sectors will make a big difference to the price per litre that the farmer is paid for dairy production.
By concentrating upon the export and import part of this sector, we get a modified graph as follows:
Here we can see that the UK enjoys a surplus of raw milk exports over imports and the same with milk powders. The reason for this is that British farms are both highly efficient, thus producing milk at a reasonable price; and that British dairy farmers produce a remarkably high quality product, making it attractive to EU milk processors. It can be assumed that all of the trade in raw milk is to EU countries. Elsewhere there is a small but growing market for butter, specialist cheeses and milk powder to both EU and Non-EU countries.
The ADHB figures are given showing a split between EU and Non-EU trade for Butter and Cheese only. These show the following:
These both demonstrate that our trade is dominated by the EU. At present, non-EU market for exports is considerably under-developed. There are big marketing opportunities for UK produce in countries such as China and India. These have not been exploited as much as they could have been. New Zealand and Australia have both benefitted from long term activity in the China and the Far East. To a large extent, this activity was prompted by the UK’s accession to the EU in 1973, when we were seen to have turned our back upon the Commonwealth. However, a cautionary note should be sounded in that the Chinese market was seen as rapidly and continuously expanding as recently as 2012. That caused a rapid expansion of the New Zealand dairy industry, but which has now run into a slowdown because the growth rate in the market has not been as high as expected. Nevertheless, there is a growing market for such things as high quality speciality cheese to meet the demand by an expanding Chinese middle class.
The AHDB statistics for dairy are presented in a different way from that for beef, sheep and pigs. Exports and imports for the product categories of Raw Milk, Cream, Condensed Milk and Milk Powders have not been analysed in terms of exports and imports to and from EU and Non-EU countries. This has only been done for Butter and Cheese, as shown in the green and blue bar charts above. To arrive at a split between EU and Non-EU figures, the Butter and Cheese split has been averaged and then apportioned between Cream, Condensed Milk and Milk Powders. Raw milk exports and imports are assumed to be entirely to and from the EU. This gives a revised balance sheet for the EU trade as follows:
EU trade is dominated by raw milk and cheese, but the overall picture is that the balance is almost equal in terms of quantity.
Taking the EU trade balance for livestock products from Part 1 and adding these to the total trade balance for dairy gives this:
From this it can clearly be seen that the UK balance of trade in terms of the overall tonnage of meat and dairy is heavily in favour of the EU.
These figures will give a basis for an assessment of the respective tariff barriers that could conceivably be erected against the UK by the EU in the event of Brexit. This assessment will follow in Part 3.