The 11,000-farmer-member cooperative, while based in Denmark, has production facilities in 11 countries, and is the UK’s biggest dairy producer.
The company is responding to a London School of Economics (LSE) report on Brexit, launched at an event this morning.
Arla Foods UK said if the findings of the LSE report come to reality regarding non-tariff barriers to trade and restricted access to labor after Brexit, the availability of butter, yogurt and cheese could become restricted for UK consumers.
Referring to the LSE report, Arla said any friction and any limitations on access to key skills will mean UK consumers pay the price through less choice, higher prices, and potentially lower food standards.
The UK Government’s White Paper on the UK’s future relationship with the EU sets out proposals to ease trade between the UK and Europe. However, the Government is encountering difficulty on agreeing on its Brexit position, with the resignation of ministers, and close votes in the House of Commons on the wording of the Customs Bill, with further debate today on the Trade Bill making the country’s negotiating position – and the nature of Brexit – uncertain.
Three negative outcomes
Arla Foods said that the issues identified in the LSE report mean potential negative issues for the dairy industry in the UK, with three possible outcomes.
The first is that it could become much more difficult to import dairy products from Europe, leading to a shortage both of dairy staples and particularly of products such as speciality cheeses, where domestic supply is constrained by limited production capacity in an already tightly managed supply chain.
Second, there would be escalating pressure on costs, and ultimately increased consumer prices for dairy goods. Current dairy imports include cheese, butter, butteroil, whey, buttermilk and fermented products, yogurt, concentrated milk, powders, milk and cream, infant formula and ice cream, meaning that the impact could be widespread.
Finally, Arla said it is possible ways are found to somehow ramp-up production and cut farm costs, which in the short-term at least would undermine the standards of the UK dairy industry – something neither farmers nor consumers would accept.
The company adds there are other potentially costly impacts throughout the supply chain, problems that could be made worse by a shortage of vets, lorry drivers and farm workers post-Brexit.
Among the issues caused by non-tariff barriers and unavailability of key labor, the report identifies:
- Increased times for customs inspections at UK ports, with even a seven-minute additional waiting period for each inspection adding 10 hours of delays and additional costs of at least £111 ($147) per container.
- Risks of additional delays thanks to asking the UK’s new Customs Declaration Service, designed to handle only 150m declarations per year, to handle the more than 250m expected post-Brexit.
- Further additional costs due to subjecting products of animal origin (POAO) such as dairy to checks at the border – if, indeed, border posts are equipped to do such checks at all.
- An acute challenge caused by increased veterinary checks at the same time as the number of vets decreases as a result of Brexit, leading to a growth in workload of 372% for vets at the border – with “no certainty that the system will continue to function adequately given these additional pressures.”
- Rising costs as EU national lorry drivers and farm workers return home due to the fall in the value of the pound and other Brexit-related issues.
Arla Foods UK has previously said a hard Brexit without a trade deal could have a disastrous impact on the UK’s dairy industry and its consumers.
”The probability of the UK and the EU reaching a deal in their negotiations seems to change every day, but this report makes clear that even with an agreement over trade and a ‘softer’ departure from the European Union these major issues remain, posing a dilemma for the British dairy industry at large,” an Arla statement said.
Ash Amirahmadi, UK managing director, Arla Foods UK, said the farmers that own the Arla dairy cooperative already balance keeping consumer prices down while maintaining quality and standards.
“There’s no margin to play with here in the value chain,” Amirahmadi said.
“It is important to be clear about this: Brexit might bring opportunities to expand the UK industry in the long term, but in the short and medium term we cannot just switch milk production on and off. Increasing the UK’s milk pool and building the infrastructure for us to be self-sufficient in dairy will take years.” – Ash Amirahmadi, Arla Foods UK managing director
“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.”
According to Arla Foods UK, the UK has the second largest dairy trade deficit in the world, at up to 16%, with 98% of UK dairy imports of EU origin.
That heavy reliance on EU imports means any problems at the border post-Brexit and shortages of labor in key areas are likely to have a major, and predominantly negative, impact on the domestic market in the form of shortages of products and significantly higher prices, Arla Foods UK argued.
Specialty cheese ‘scarce’
Amirahmadi 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, yogurts, cheese and infant formula, into occasional luxuries. Speciality cheeses, where there are currently limited options for production, may become very scarce.”
Amirahmadi said to protect the British public, the cooperative is calling on both sides in the negotiations to be “pragmatic and sensible as they address the practicalities of Brexit, allowing us to have frictionless customs arrangements and ready access to key labor in the years ahead.”