Spiralling trade costs pose 'dairy dilemma' after Brexit - Supply Management
Border friction would add at least £111 per container for dairy importers, a report said. © vencav - stock.adobe.com
Border friction would add at least £111 per container for dairy importers, a report said. © vencav - stock.adobe.com

Spiralling trade costs pose ‘dairy dilemma’ after Brexit

18 July 2018

The UK dairy industry faces a sharp rise in prices and shortages of products when Britain leaves the EU, according to milk producer Arla Foods.

Even if the government strikes a trade deal with the EU, impacts on the supply chain, such as non-tariff trade barriers and labour shortages, could lead to spiralling costs for dairy companies, a report by the London School of Economics (LSE) found. 

The report, commissioned by Arla, said longer waiting times for customs inspections at the border would increase trading costs because of longer hours for lorry drivers. 

Every seven minutes of port check times would add ten hours to transportation times, it found, equating to at least £111 extra per container. However, other factors like fuel and lorry maintenance costs, loss of perishable good life and higher wages for lorry drivers mean the figure is “at the lower end of the likely range”.

The report warned of extra delays because the UK Customs Declarations Service would have to deal with 250m declarations per year after Brexit, 100m more than the 150m it was designed to handle, which could further compound the £111 figure. 

Rules of origin certificates on products of animal origin (POAO) would add another £45 per six-tonne consignment, while veterinary checks would add £50.60, it said. 

Goods requiring these veterinary checks would increase by 325%, which would increase workload for vets by 376% when combined with the decreasing labour force because of non-UK EU workers leaving the country, the report found. 

It added: “There can be no certainty that the system will continue to function adequately given these additional pressures.”

The UK buys 98% of its dairy imports from the EU, and has a 16% dairy trade deficit, the second largest in the world, according to the report. “Any friction at the border is likely to have a major, and predominantly negative, impact on the domestic market in the form of shortages of products and significantly higher prices,” it said.

Arla declared the news a “dairy dilemma” for Britain, which would ultimately see consumers paying the price, turning staples into luxury items. 

Ash Amirahmadi, Arla’s UK managing director, said: “There’s no margin to play with here in 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 added: “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 every day staples, like butter, yoghurts, cheese and infant formula, into occasional luxuries.”

Arla is the latest UK company to warn of the costs of losing frictionless trade. Earlier this month Jaguar Land Rover warned that Brexit delivery delays would £125m per hour, while Airbus last month refused to commit to extending its UK supplier base for the same reason.

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