Butter – the opportunity for import displacement

Published 29 August 17

The size of potential trade barriers in a post-Brexit environment for butter are significant, with the current WTO tariff sitting at €1,896/tonne. However, the UK had a trade deficit of 23k tonnes of butter in 2016. In other words, we imported 23k tonnes more butter than we exported. Ireland accounted for around 65% of imports (38k tonnes), with Denmark (7k tonnes) and France (5k tonnes) being the next largest suppliers.

At first look, the opportunity for the UK dairy industry to displace some of those butter imports with home-produced product appears greater than the risk of lost exports. However, it is important to understand how the trade deficit for butter has moved, and its impact on other products.

25.08.17 butter displacement

Although butter trades in a deficit (both in value and volume terms), the position has improved significantly since 2013, around the time when Müller’s new butter plant opened. Over the same period, the UK’s trade position for cream has worsened – moving from being a net exporter of cream in 2012 to a net importer by 2016. This shows the strong relationship between the two products.

Producing 23k tonnes of butter requires around 470m litres of milk, a 3.5% increase on UK milk production, or around 47k tonnes of cream. In order to deliver this, the UK would either need to produce more milk off farm, or divert milk away from other products, such as cream. If the butter was produced from raw milk, then the UK would also generate more skimmed milk or skimmed milk powder, which would also need to be sold.

In the short-term, if the UK looked to fill the trade deficit on butter it is likely the trade deficit on cream would worsen as a result.

Excluding existing capacity, producing 23k tonnes more butter would require a plant around half the size of the plant Müller opened in 2013, for a £17m investment.

Being physically able to produce the butter and sourcing the raw ingredients are only part of the equation. Relationships, brand loyalty, negotiations between companies and specification of product will also come into consideration.

There are a range of scenarios that could impact UK agriculture, and with Brexit negotiations just starting, it is still too early to know what deal will be agreed. If WTO or similar tariffs are applied to both UK butter imports and exports, one thing for certain is that the trade balance will change. Regardless of the Brexit trade deal, the key remains being cost-effectiveness across the supply chain in order to compete for whatever opportunities arise.

AHDB has published a number of Horizon reports that are available for download. Later this year, AHDB will be exploring in detail the trade prospects for dairy and modelling the impact of different Brexit scenarios on the sector.