Much has been highlighted about the disasterous consequences of a no deal Brexit for beef and sheep farmers and with considerable amounts of dairy products being imported and exported, a similar scenario appears to be looming for UK milk producers.

According to a report from AHDB, dairy farms could see their Farm Business Income (FBI) fall by 18% in 2022 even if there is a free trade deal with the EU, and under a no deal situation, where trade with the EU will be subject to WTO tariffs, FBIs could fall by 22%.

The industry levy board points out proposed UK tariffs mean there will be significant differences in the tariffs for imports to the UK, and for exports into the EU, which will bring a number of challenges for the industry.

Tariffs have been proposed for imports of butter and some cheeses (including Cheddar), albeit at significantly lower levels than those that will be imposed by the EU. Yet there are no proposed import tariffs on milk, cream, yogurt, whey products or fresh mozzarella.

UK dairy exporters will face tariffs on the majority of dairy products exported to the EU. This will make UK products more expensive, and in most cases, uncompetitive on EU markets.

Hence, it is likely that mozzarella, cream and yoghurt will continue to come into the UK, given the lack of tariff. However, exports of these products will become disrupted, putting strain on UK exporters.

Cheddar imports could also be reduced due to the low tariff rate, while exports are likely to be severely disrupted. This could lead to a build-up of Cheddar stocks in the UK, and cash flow implications for Cheddar manufacturers, according to AHDB.

There is also a tariff on raw milk imports into the EU, making the movement of milk from Northern Ireland to the Republic of Ireland uneconomical. This milk will either need to be processed in Northern Ireland, most likely into lower-value products such as butter and milk powder, or shipped across to mainland Britain for processing. The latter would put pressure on logistics and already strained processing capacity in Britain.

The current end of October Brexit deadline coincides with lower milk production months in the UK too. While this offers some breathing space for processing capacity, that respite will only be temporary and would not be enough to enable all Northern Irish milk to be processed in mainland Britain.

Worse still, the small tariffs imposed on EU cheese and butter exporters entering the UK, mean such products will continue in comparison to the larger tariffs faced by UK exporters.

Furthermore, the UK import tariffs facing non-EU exporters in a no-deal scenario would be much cheaper or zero compared to what they currently pay as EU third-countries. This would possibly make exporting products to the UK more attractive, but also reduce the protection that UK products currently have from the global market.

Meanwhile, a no deal will make exporting dairy products from the UK to the EU more expensive and in most cases, restrictive. For example, the majority of the UK's raw milk exports go to Ireland for processing, which under a no-deal scenario would incur a tariff of €21.8/100kg. This represents adding 68% to the cost of the milk and is likely to strain domestic processing capacity if it becomes uneconomical to send product over the border.

Looking closer at the beef and sheep sectors and the prospect of a no deal, it’s expected the UK will be oversupplied with lamb for some time, while the beef sector is perhaps at less risk with no huge overnight changes expected. However markets will eventually be more open to global competition.

Import tariffs are proposed for sheep meat imports at the same level imposed by the EU. Therefore, trade is expected to be significantly affected on the home market especially when tariff free access to the UK for New Zealand and Australia will remain.

Import tariffs are nevertheless proposed on beef coming into the UK at a rate lower than the EU’s existing external tariffs. A tariff free quota has also been proposed.

This means that the beef trade is unlikely to change dramatically in the first few months after Brexit. However, the new tariff rate quotas are available to all countries with a licence to export to the UK, not just EU member states.

Hence, it is expected that the market will adjust over time, perhaps to accommodate more competitively priced beef from outside the EU.

In the shorter term there is likely to be particular difficulty for those exporting cow beef for further processing in the EU and this may have an effect on the UK price.