Feature Dairy
Brits benefit from free dairy trade with kiwis
The United Kingdom has signed a free trade agreement with New Zealand in late spring 2023. Since then, there are fewer trade barriers between the two countries. This provides relief, especially for the current tight British dairy market. But now the European Union has also signed a free trade agreement with New Zealand. Will that bother the British?
The United Kingdom needs dairy imports to meet its own needs. Even after Brexit, the EU remains an important trading partner, but as an independent nation, the United Kingdom is looking further to be less dependent on the European mainland. In that respect, a free trade agreement with New Zealand, also a part of the Commonwealth, suits the British well. New Zealand, with dairy giant Fonterra being the world's largest exporter, is also pleased with the deal.
Fastest growing export market
Earlier this year, New Zealand's Minister of Agriculture, Todd McClay, encouraged companies to take advantage of the free trade agreement. The United Kingdom is one of the fastest growing export markets for New Zealand. There is also an increase in products such as wine, meat, honey, and apples.
An analysis for the second quarter by AHDB, the British organization for agriculture and horticulture, shows that the United Kingdom's cheese imports have increased. This compensated for a potential shortage in the British cheese market due to lower domestic cheese production and higher exports. The British imported most of the cheese from the EU, with New Zealand as the second supplier.
Another example is butter. Butter production in the United Kingdom decreased by 10% year-on-year in the second quarter. Exports also declined by 20%. However, a 33% increase in imports led to a small 1% rise in stocks. New Zealand is happy to meet the additional demand and can do so partly due to low tariffs. The relatively high butter prices also make the transportation costs of New Zealand butter more manageable. Naturally, butter prices in the United Kingdom follow general market trends and have risen significantly, as in Northwest Europe. Total dairy exports from the United Kingdom decreased by 2.6% in the second quarter, while imports increased by 14.8% year-on-year.
Increasing share of imports
AHDB expects that dairy availability in the United Kingdom will remain tight for the time being, necessitating higher imports. This is due to moderate milk production earlier this year. On the other hand, there are opportunities for the British in the Irish dairy market, which is also experiencing a temporary shortage of milk. Economic and geopolitical influences can also significantly determine future trade flows.
Furthermore, starting from May 1, 2024, New Zealand has also signed a free trade agreement with the EU. From day one of implementation, New Zealand saves NZ$100 million in import tariffs. The EU becomes a much more competitive buyer, although there are differences between the agreements New Zealand has made with the EU and the United Kingdom. The negotiations for the free trade agreement with the EU began in 2018, before Brexit. Import tariffs with the EU are gradually being phased out, while many tariffs (including on dairy) have been immediately abolished by the United Kingdom. The EU also places more emphasis on sustainability, the environment, and labor rights in the free trade agreement. The EU also has stricter rules on data protection and privacy. This makes it easier for New Zealand exporters to export dairy to the United Kingdom. The British have consciously focused on this to secure a preferential position in ensuring food supply.
