Cheddar – the opportunity for import displacement

Published 27 July 17

The size of potential trade barriers in a post-Brexit environment for cheddar are significant, with the current WTO tariff sitting at €1,671/tonne. However, the UK had a trade deficit of 22k tonnes of cheddar in 2016. In other words, we imported 22k tonnes more cheddar than we exported. Ireland accounted for around 80% of imports (78k tonnes), with the Netherlands (9k tonnes) and New Zealand (4k tonnes) being the next largest suppliers. 

At first look, the opportunity for the UK dairy industry to displace some of those cheddar imports with home-produced product appears greater than the risk of lost exports.

UK manufacturers certainly have the know-how to replace imported cheddar. There is a wide variety of cheddar produced and consumed in the world, and countries who have not supplied significant quantities to the UK for a number of years will be playing catch-up to get the flavour profiles right for the UK consumer.

Producing 22k tonnes of cheddar requires around 200m litres of milk. In order to deliver this, the UK would either need to produce more milk off farm, or divert milk away from other products. Neither of which would be particularly difficult if the price was right.

What is, perhaps, more difficult is having the processing capacity to produce the extra volume. The majority of cheddar manufacturing sites in the UK already run at capacity through the spring months. Additional cheese production would, therefore, need to happen outside those peak months, or would require investment at factory level to increase capacity.

Milk standardisation could be a viable option to help increase cheese production without having to invest in additional cheese vats. Standardisation allows an increase in the amount of milk solids entering the cheese vat and, subsequently, increases the cheese output from the factory by roughly 10%. This does depend on the rest of the production line being able to manage the additional milk input and having capacity to cope with the extra cheese made. In the UK, a few processors already have this technology, although a number do not.

Being physically able to produce the cheese is only one part of the equation. Relationships, brand loyalty, negotiations between companies, specification of product, maturation times, storage, availability of milk and ability to handle by-products will also come into consideration.

27.07.17 cheddar trade

Although in volume terms, the UK has a cheddar trade deficit, this is no longer the case in monetary value. Over the past 10 years, the UK’s trade balance for cheddar has improved significantly. In 2008, the UK was in a deficit by £294m but, by 2016, the position had improved to a trade surplus of £25m.

The anomaly comes from the average costs of imports versus exports. In 2016, the average cost of imported cheddar was approx. £2,100/tonne while the average cost of exported cheddar was around £3,050/tonne. Part of this disparity will be as a result of a higher proportion of packed goods being exported compared with imported. The majority of imported cheddar is still in bulk format, and is then packed in the UK.

To displace the imports, the UK will need to be competitive against current costs as well as alternative suppliers, such as New Zealand. A direct comparison is difficult due to the wide range of cheddar varieties being produced. However, the chart below gives an indication, by comparing the average cost of Irish imports with the AHDB UK mild cheddar price for the last five years. 

27.07.17 Irish comparison

In 2016, Irish cheddar was imported at an average cost of £2,100/tonne. Applying the WTO to this product would take its cost up to £3,500/tonne. In the same year, the average AHDB mild cheddar value was around £2,300/tonne. If cheese buyers were looking to replace imports at the 2016 level of £2,100/tonne, UK manufacturers could potentially have found more profitable options for the milk. However, the size of the potential tariff is such that there is a decent margin to play with. An opportunity to provide UK manufacturers with an incentive to produce more cheese, while still offering buyers a saving compared with the import plus tariff alternative.

There is 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 cheddar imports and exports, one thing for certain is that the trade balance will change. Regardless of the Brexit trade deal, the key remains 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.