The international dairy market is big business. In 2011, the equivalent of 49bn litres of raw milk was traded globally, according to New Zealand dairy co-operative Fonterra. Of the current annual GB output of 11.5bn litres, only a small fraction is exported. However, farmers with an eye to the future are starting to look overseas to add bounce to their bottom line.
The international milk market is volatile and is likely to continue to be so, but for British dairy farmers who can think flexibly, respond quickly and have plenty of determination, the evolving world dairy market may offer new opportunities.
The international picture
The most commonly internationally traded dairy products are cheese, whole milk powder (WMP), skimmed milk powder (SMP), whey and butter, with end use varying depending on destination. China is currently the biggest dairy importer at more than 925,000t annually – 15% of total world trade. This is mainly in the form of WMP – much of which is destined for infant formula – and dry whey proteins – mainly destined for animal feed. Russia is the next biggest importer, at 425,000t, with an emphasis on cheese and butter. Japan and Korea are the other big cheese importers.
The UK dairy export scene
Although the UK is a net importer of dairy products, its cheese exports have consistently increased year on year since 2008, with about 123,000t exported in 2011 alone, according to DairyCo statistics. Of this, 35,800t went to the EU and 3,200t to the USA, with smaller markets – 500t or less each – in the Middle East/North Africa, Russia, Mexico, South East Asia and Japan/Korea.
Butter exports are lower, with 13,200t of butter exported in 2011, up from 11,600t in 2010. The vast majority, 9,040t, went to Europe, with the next biggest importer being Russia at 480t. Powdered milk and/or whey generally dominate UK exports to China, Mexico, the Middle East/North Africa and South East Asia, where they are used for animal feed, local production of “fresh” dairy products after reconstitution into milk and yoghurt, or in infant formula. Small volumes of fresh liquid milk are also exported to the EU for niche product manufacture.
In terms of global trade the UK is a small player. For example, UK cheese exports to Russia accounted for less than 0.2% of its total cheese imports in 2011, and even in our biggest market, the EU, UK cheese accounted for only 2.3% of all imported cheese.
However, both international and domestic markets are changing fast. Fonterra forecasts that world trade in dairy products will increase by 71% between 2010 and 2020, largely powered by Asia’s emerging middle-class consumers and the Westernisation of their diet to include more dairy produce.
Given the prices many British dairy farmers are currently getting for their milk, the sector is researching how to enter this potentially lucrative alternative market.
A DairyCo report on export opportunities, published in October 2012, reveals that while the EU is generally a major dairy importer, its focus tends to be on continental cheeses, such as Edam, Gouda and Emmenthal.
In addition, since 2009 dairy imports to the EU have decreased by 16% and to the USA by 35%, which can be attributed to slower economic growth and higher world dairy prices. The bulk of cheddar imports are destined for lower-value processed cheese production, although the report did identify potential to develop the market for specialised cheese within the EU.
Meanwhile, Russia offers a strong export opportunity, thanks to its well-established dairy-consuming culture and increasing consumer incomes.
But it is the growing market in Asia that seems to have triggered the greatest interest in dairy exports. The Organisation for Economic Cooperation and Development (OECD) predicts that the number of middle-class consumers in Asia will be more than 3.2 billion by 2020, a threefold increase on 2009.
But can all this change and volatility in the international dairy market really help dairy farmers back on British soil? Duncan Pullar, director of DairyCo, is unsure. “Economic theory says that if dairy farmers have this new alternative outlet for their milk, they should reap the benefits of greater returns as competition for their product increases,” he says.
“However, the fact is that without an ongoing surplus of milk available to export on a decent scale, our milk processors are generally not geared up to have the flexibility required to promote it abroad.
“What we need is a brave processor to create the export market and generate the demand for milk from British dairy farmers – that should be enough to change the current status quo.”
There is plenty of help and opportunity for farmers keen to explore new outlets for their products. The Food and Drink Exporters Association offers business mentors and help at trade shows, while UK Trade and Investment, with its network of international advisers, is a government-funded body set up specifically to assist UK businesses in trading overseas. Their expertise was central to the success of the Lye Cross Farm exports to Korea (see Export Success, right). DairyCo might also co-fund an agricultural attaché in China, specifically to facilitate exports from the UK.
Export success for Lye Cross Farm
A Somerset farm is creating a niche market for its dairy goods. The Alvis family has been making cheese for 60 years, marketing it under the Lye Cross Farm brand. As well as supplying domestic retailers, they now export to more than 30 countries, producing 60t of cheese a week from their 1,000-head herd and a network of 22 long-term milk suppliers. As sons Johnny and Peter Alvis stepped forward to run the business, they decided to focus more on exporting, given the maturity of the UK market.
Tim Harrap, head of collaboration, says one of the firm’s most recent export successes is a 50% increase in sales to Korea during the past 12 months – and it’s the firm’s specialist product that got them into the country.
“Our West Country Farmhouse Cheddar carries the Product of Designated Origin symbol from the EU which signifies its authenticity as the original cheddar,” he says. “Coupled with our long-term commitment to organic cheddar production, this has enabled us to gain real traction in Korea.”
It took years of fact-finding, networking, visits and contact building to reach this point, and Mr Harrap is clear about the difficulties of entering the international scene. “You have to be fleet of foot and entrepreneurial to engage with markets overseas, and don’t expect results overnight. It takes immense patience and tenacity to find a footing, and these projects generally take a good three years to bed in.
“For some markets, you have to get hold of health certificates and get them signed by embassies in London, so there’s a cost to that. Transport costs have to be considered. Import tariffs have to be weighed up – but we deliver to the quay, so the importers have to sort out the levy payments.”
Alvis exported about 20% of its cheese tonnage last year. “You can obtain a premium for your product on export markets – that’s why people are so interested in exporting.”