Japan trade deal is good news for EU dairy industry

This is the assessment of analysts at AHDB Dairy, a division of the Agriculture and Horticulture Development Board.

Last year, the EU provided about a third of Japan’s dairy imports, made up of predominantly butter and cheese.

Cheese makes up the majority of Japan’s dairy imports, and while Europe increased its share of these sales in 2016, to account for 30% of volumes, it competes with Australia and New Zealand for Japanese market share.

The new deal puts the EU in a more advantageous position, having secured full liberalisation of trade in hard cheeses, an annual duty-free quota of 20,000 tonnes of soft cheese (rising to 31,000 after 15 years) and the phasing out of all duties over a 15-year period. Currently, tariffs on cheese exported to Japan from Europe range from 30% to 40% of the goods’ total value.

In addition, it is believed the EU negotiators secured a concession which increases the size of the tariff-free quota in line with the rate of consumption growth in the Japanese market. Another key benefit from the deal was Japan’s agreement to recognise Geographical Indicators (GIs), including Feta, Roquefort and Parmigiano-Reggiano cheeses.

Turning closer to home, AHDB economists have confirmed that the proportion of dairy enterprises unable to cover cash costs of production almost doubled between 2016 and 2017 to reach almost 40% of those analysed. The number of herds able to remain profitable throughout the downturn, without the use of other income streams such as Basic Payments, was less than 20%.

This was the result of dairy farm finances being subject to a double hit of rising costs of production and lower average milk prices in the year ending March 2017. The average cost of production in the year to March 2017 rose by 1% compared to the previous year. While the costs of the main inputs were relatively stable, reduced concentrate use resulted in lower yields. On average, yields were down by 2% from 2016, which increased the average cost per litre.

While prices on dairy product markets saw considerable recovery throughout the year, farmgate prices achieved only marginal gains. As such, the average price achieved over the 12 months was 0.5% lower than the previous 12 month average.

Although the immediate cashflow situation on most farms will have improved since March, off the back of higher milk prices, the long-term impact of the severe downturn is still being felt by many.

An AHDB Dairy spokesperson said that a reduction in the investment on farm, an extension of credit from suppliers and increased borrowings will all take time to unravel adding: “Farmers need an extended period of profitability to reverse the impacts from the last couple of years.”