Dairy and Brexit: interim findings suggest harsh realities but significant opportunities

Interim findings from Trehane Fellowship study ‘Identifying a Strategy for the UK Dairy Industry Post-Brexit’ suggest the dairy sector will face harsh realities in the short term after leaving the EU – but could gain significant opportunities from the need for supply chains to work together and from ‘internationalising’ the industry’s focus.

The Fellowship, which was awarded to Andersons Partner Mike Houghton in November last year, is due to conclude in October 2017. The final report findings will be revealed at the annual Trehane Dinner on 17 October, with the full report released the following day at the inaugural RABDF Dairy Business & Policy Conference – also held in conjunction with The Trehane Trust.

Mike explains that his findings have resulted from a number of investigative meetings in the UK and US, as well as in the Netherlands and Belgium. His first finding is the dairy sector needs to avoid ‘Brexit-Obsession’; the assumption should be there will be a trade deal of some kind, so the focus needs to shift to how the industry shapes itself over coming years.

“We also have to assume risk management will be essential,” explains Mike.

“A margin protection scheme similar to the US could potentially be low cost when averaged across a number of years, but other risk management tools are likely to become more relevant in the future.

“These are not really available yet to the UK dairy farmer, but systems are being developed and training will be required so that dairy farmers understand the principle of risk management.”

He also points out that the productivity gains made in pigs, poultry and horticulture in recent decades suggest that income support of one kind or another experienced by dairy has actually discouraged productivity improvements.

“We must increase productivity, but need to think about the Producer Organisation system so successful in other countries which supports investment rather than giving people an amount of money for looking after the land,” explains Mike.

“It is worth reviewing how the PO system has worked for horticulture in particular, as this has tended to encourage investment in technology and productivity, and has to be match funded by participants.”

Other areas that stand out for Mike are the benefits of better supply chain communications, and the gains to be made from sharing pre-competitive supply and demand information in an effort to soften global price ‘volatility’.

“Brexit could well force supply chains to work more closely. If the processor can run the factory at 98% efficiency, everyone would benefit. But they never can because the supply of information from producers doesn’t allow them to. More trust within the supply chain and better communication could solve this.

“And while volatile prices due to imbalances of supply and demand is not a Brexit-specific issue, there would be considerable benefits to the UK industry in reducing the extremes of price fluctuations.

“Brexit gives the UK more to gain if the world’s largest dairy businesses – which are in fact farmer owned – collaborated pre-competitively to talk volumes. In effect this could create an ‘OMEC’ – an ‘OPEC’ for milk. Sometimes less could be more!”

While The Trehane Trust is best known for its sponsorship of dairy-focused Nuffield Scholars, the Trehane Fellowship was created in 2016 to fund independent studies in areas deemed of interest or concern by the Trustees. New Fellowships are expected to be awarded on a biennial or triennial basis.

To hear Mike Houghton present his report at the Trehane Dinner on 17 October, visit www.trehanetrust.org.uk to book; to attend the RABDF Dairy Business & Policy conference the following day, visit www.rabdf.co.uk/events  for more details