the white paper - dairy ukrural impact of dairy dairy is the bedrock of local communities. local...

THEWHITEPAPEROCTObER 2017

i

Between them, Dairy UK members collect, process and distribute almost 85% of UK milk production. Our role is to help create a positive platform for the future of dairy.Our overarching goals are:

To help create an environment in which dairy foods are seen as safe, sustainable and integral to the UK nation’s diet;

To help create an environment that allows the dairy sector to compete and grow without an undue burden of regulation.

Dairy UK represents its members interests with a variety of stakeholders including: parliamentarians, Government departments, policy and regulatory bodies, industry organisations and the media.

We offer our members and the stakeholders with whom we interact a wealth of knowledge and experience across areas such as policy and economics, supply chain integrity and technical issues, nutrition and health, environmental sustainability and occupational health and safety.

Dairy UK owns a number of successful subsidiaries and schemes including:

• TheDairyCouncil;• TheBritishCheeseBoard(BCB);• DairyEnergySavings(DES);• DairyTransportAssuranceScheme(DTAS);• RollContainerRepatriationScheme.(Trolley

Team)

DAIRY UK

Dairy UK is the trade association for the British dairy supply chain. It brings together farmers, dairy co-operatives and processors, manufacturers and bottle milk buyers throughout the United Kingdom.

We have a strong international role working through organisations such as the International DairyFederation,EuropeanDairyAssociationandtheGlobalDairyPlatform.OurCEO,DrJudith Bryans, was elected President of the International Dairy Federation in October 2016 an organisation representing 45 countries and 75% of the global milk supply which makes it the global voice for the dairy sector on issues along the entire dairy chain from farm to fridge.

How to find usOurmainofficeislocatedinLondon:

Dairy UK Head Office6thfloor,210HighHolborn,LondonWC1V7EPt.+44(0)2074051484e. [email protected]

Wehavetwootheroffices:

Dairy UK Scotland110AMaxwellAvenue,Westerton,Bearsden,GlasgowG611HUt.+44(0)1419421447e. [email protected]

Dairy UK Northern IrelandShaftesburyHouse,EdgewaterOfficePark,EdgewaterRoad.BelfastBT39JQt.+44(0)2890770116e. [email protected]

Dairy UK | The White Paper 2017

ii

iii

Welcometothe2017editionofTheWhitePaper, which records the performance and importance of the UK dairy industry, whilst calling on Government to support the dairy industry with the many challenges and opportunities that lie ahead.

We take great pride in our industry and understandably so. Dairy matters a great deal and, like any strategically important industry, we need to ensure we are meeting the challenges of today and are equipped to deal with what the future holds.

Everyyeariseventfulforourindustry,but2017has presented us with some of our greatest tests yet. Brexit looms large on the horizon and so there has never been a more important time for us to remind Government and decisionmakersofoursignificance.

In this year’s White Paper we have been clear on what we think Government could do to help create an even more dynamic and successful dairy sector, highlighting the key policy challenges and opportunities we face. We look forward to working closely with the Government and key decision makers through thesetimesofchange,andareconfidentthedairy industry will emerge stronger than ever before.

I am glad to report there is great unity of purpose across the industry in sparing no effort to inform Government of how vital it is to have a thriving dairy industry and what

steps need to be taken to mitigate the threats and maximise the opportunities that Brexit presents, to ensure that we continue to be successful. We’re calling on the Government to work with us and ensure that future trading arrangements can work for our industry, and include fundamentals such as access to labour, supporting our dairy farmers and ensuring wecancontinuetoexporttotheEUandtheworld.

Our industry has to contend with a vast range of issues ranging from nutrition to the environment and animal welfare, and there is a continuing need for us to promote relentlesslythenutritionalbenefitsofourfoods. Of paramount importance is our ability tomaintaintheoutstandingconfidenceconsumers continue to show in our products. In this edition of the White Paper we have set out how we can work with the Government on these key issues so we can secure the resilient and effective dairy industry the future needs.Given the increase in global demand for dairy, prospects are good. We do, however, need to seize the moment – and that will require yet more of the innovation and inspiration that have been the hallmark of our industry for generations.

Ihopeyoufindthisyear’sWhitePaperahelpful reference tool and a useful insight into a great UK industry.

Paul Vernon,Chairman,DairyUK.

CHAIRMAN’S INTRODUCTION


iv

CONTENTS

1. THE SIgNIfICANCE Of THE UK DAIRY SECTOR .................... 1

2. bRExIT ....................................................................................... 5

3. ANIMAl HEAlTH AND WElfARE .......................................... 15

4. DAIRY fARMINg ...................................................................... 19

5. MIlK COllECTION ................................................................. 29

6. MIlK PROCESSINg ................................................................ 33

7. fOOD SAfETY, QUAlITY AND INTEgRITY ........................... 43

8. HEAlTH & SAfETY AND TRAININg ...................................... 47

9. CONSUMERS AND MARKETINg............................................ 51

10. DAIRY AND NUTRITION ......................................................... 59

11. UK DAIRY AND THE ENVIRONMENT ................................... 63

12. WORlD DAIRY TRADE AND fUTURE PROSPECTS ..............77

13. NUTRITION EDUCATION AND PROTECTION ...................... 87

v

THE SIgNIfICANCE Of THE UK DAIRY SECTOR

1.

1


Thedairysectorplaysasignificantpositive role in the UK economy, the diets of consumers, rural communities, the environment and in food security.

23,000 50,000Employed by processors Employed on farms

DAIRY INDUSTRY EMPlOYMENT

With13,000dairyfarmersproducingover14billion litres of milk annually, dairy represents

14 bIllIONlitres of milk

13,000DAIRY fARMERS

ANNUAl MIlK PRODUCTION

PRODUCE

Over 70,000 people are employed directly by the dairy sector in the UK on farm and in processingplants.Additionalemploymentisprovided within subsidiary industries whose ownprofitabilityreliesonastrongdairyindustry.

14.8% of the value of agricultural produce in the UK and £8.8 billion of sales at wholesale level.

2

THE IMPORTANCE Of THE DAIRY SECTOR IN THE UK

Theestimatedvalueoftheindustryisanaggregate of £27.8 billion once indirect and

VAlUE Of OUR INDUSTRY

14.8%of the value of agriculture produce at farm level.

£8.8bnof sales at wholesale.

£27.8bnaggregate turnover impact estimated once indirect and induced multiplier impacts are considered.

ThedairyindustryhelpstofeedtheUK.It’stherefore an important part of the nation’s food security.

RURAl IMPACT Of DAIRY

Dairy is the bedrock of local communities.

localProsperityland

Stewardship

Dairy farmers are key to stewardship of the land and the dairy sector plays a key role in the prosperity of rural communities.

induced multiplier impacts are taken into account.

1.THESIGnIFICAnCEOFTHEUKDAIRySECTOR

3


DAIRY AND A SUSTAINAblE DIET

The dairy food group plays an important role in providing key nutrients to the diets of children and adults.

PROTEIN

CAlCIUM

VITAMIN b2 (RIbOflAVIN)

PHOSPHORUS

IODINE

POTASSIUM

VITAMIN b5 (PANTOTHENIC ACID)

VITAMIN b12

Our processors deliver high quality, safe and nutritious foods to the UK consumer and both

DAIRY’S glObAl STORY

TheUKdairyindustryispartofalargerglobaldairy story. It is part of a one billion strong community of people whose economic livelihoodsrelyonthedairysector.Aroundsix billion people enjoy dairy foods and ingredients worldwide.

With 20% of the world’s agricultural land being cared for by the dairy sector, and accounting for 14% of global agricultural trade, milk is the top agricultural commodity in value terms the world over.

DAIRY UK AND ITS MEMbERS: COMMITTED TO THE fUTURE Of THE UK DAIRY SECTOR

AtDairyUKweareproudtorepresentavibrant dairy sector which plays its part nationally and internationally in enriching peoples lives economically, nutritionally and environmentally.

Our members produce some of the most loved and enjoyed foods found in UK fridges, and are continually striving to drive the industry forward.

Theareasinwhichwerepresentourmemberstouch the length of the supply chain and are covered in this report. Our overriding goal is to build a positive platform for the future of dairy.

farmers and processors are committed to producing dairy foods sustainably.

4

DAIRyUKISCALLInGOnTHEGOVERnMEnTTO;

• Acknowledgetheimportanceofthedairysectortotheeconomy,thecountrysideandthenation’sdietandthekeyroleitplaysinfoodsecurityandinruralcommunities;

• Listencloselytotheviewsofthesectorwhenformulatingpolicyonfoodandfarmingissues;• Demonstrateitssupportfortheimportanceofdairyinthediettoconsumers;• Workcollaborativelywiththedairyindustrytofacilitatethegrowthofthesector.

bRExIT2.

5


After40yearsofmembershipoftheEU,theUK dairy industry is deeply enmeshed in the Europeandairymarket.

Asthesector’saggregateturnoveriscalculated at £27.8bn, the industry is clearly a keycomponentintheUKeconomy.Therefore,it is in the national interest for dairy to be given due prominence during the Brexit process and for the industry to emerge as an effective, dynamic sector equipped to continue to feed the nation for generations to come.

TheEUisourbiggestexportmarketandBrexitcan be a success for the sector if impediments totheexistingpatternoftradewiththeEUareminimised. Stabilityisofparamountimportance.TheUKGovernment recently published a position paper on the continuity of the availability of goodsfortheEUandtheUKandhighlightedthe importance of agri-foods. Dairy UK supports the UK Government’s stated aim of reachingagreementwiththeEUinordertosecure frictionless trade in goods and services and welcomes the priority given to agri-foods.

Minimisingdisruptiontoconsumersanddairybusinesses will help the UK dairy industry take

ThedecisionbytheUKtoleavetheEuropeanUnionpresentstheUKdairyindustrywithoneofitsmostsignificantchallengesingenerations.

advantage of the opportunities that Brexit may yield.

Dairy UK is committed to working closely with the Government to ensure that the needs of the sector are taken into account.

IMPORTANCE Of THE UK DAIRY SECTOR

UK dairy processors currently process 14 billion litresofmilksuppliedby13thousanddairyfarmers.UKdairyprocessorsdirectlyemploy23thousand staff in dairy operations and cheese making.Atotalof50thousandindividualsareemployed on dairy farms in the UK.

Dairy farmers are responsible for the management of around 8% of UK land area andthewelfareof1.9millioncows.

Thesectorprovidesarangeofsafe,nutritiousand value for money foods that are consumed in98%ofUKhouseholds.Dairyproductsaccountfor9%ofaUKadult’scalorieintakeofwhich two-thirds is from domestically sourced production.

6

bRExIT AND TRADE

fUTURE RElATIONSHIP WITH THE EUTheabsolutepriorityfortheUKGovernmentshould be the earliest possible conclusion ofaFreeTradeAgreementwiththeEUthatensures the greatest possible continuity of existingarrangements.Theworstoutcometothe Brexit negotiations would be for trade with theEUtobebasedonlyonWTOrules.

ThetariffsfordairyproductsintheEU’sWTOMFntariffscheduleareprohibitivelyhighinorder to prevent the import of dairy products intotheEU.ImpositionoftheWTOschedulebytheUKwouldmakeEUimportsintotheUKmuch more expensive which would impact on UK wholesale prices.

UKsalestotheEU,whichaccountfortheoverwhelming majority of UK dairy exports, wouldhavetosurmounttheEUtariffwall.Given that UK exports account for a small portionofEUtotalconsumption,thentheywould become immediately uncompetitive.

TheUK’spositiononthirdcountrymarketswouldalsobeeroded.AriseinUKwholesalepriceswouldliftthepriceofrawmilk.Thiswould pull UK input costs out of line with the world market.

Ariseindomesticpriceswouldalsobedestructive of domestic demand and result in the increased consumption of dairy substitutes.

TheimpactofWTOtariffsontheUKdairy market was modelled in a study commissionedfromtheCentreofEconomicsandBusinessResearch(CEBR)usingeconometricanalysis.Theresultsaresummarisedbelow.Theyincludeaforecastincrease in wholesale cheddar prices of 51% compared to the average price prevailing over the past four years.

Whilst UK milk production could be expected to rise to meet rising domestic prices, growth beyond immediate spare capacity would be constrained by the delay in bringing on new capacity.Calvestaketimetoreachmaturity.Thereislimitedsparecapacityintheprocessing sector and it takes at least two years to commission and build a new plant.

MovingoutsidetheEUCustomsUnionwould have a costly impact on export administration procedures which will inevitably become more complex for UK exportstotheEU.

Retailmilk

(p/litre)

Wholesale cheddar

(£/100kg)

Retailcheddar

(£/kg)

Retailbutter

(£/kg)

Average

2013-17

46.00

278.50

5.58

5.60

AverageWTO

EUtariff

15.97

142.00

1.42

1.61

Advalorem

equivalent %

35%

51%

25%

29%

% impact on

prices

Uncertain

+33%

+20%

+2%

Monetary

impact on prices

Uncertain

+91.91

+1.12

+0.11

Post-tariff

price

Uncertain

370.40

6.70

5.70

Table1.WTOTariffImplicationsforDairyPricesintheUK

2.BREXIT

7


NORTHERN IRElAND

Ensuringgreatestpossiblecontinuityofexisting arrangements is particularly important forthedairyindustryinnorthernIrelandwhichisheavilyreliantonexportstotheEU,ofbothrawmilktotheRepublicandsalesofproducttotherestoftheEU.

TherelationshipbetweennorthernIrelandandtheRepublicisparticularlysignificant.In2015dairyexportsfromnorthernIrelandwereestimatedtobe£154m(secondinmarketvalueonlytoGB)representingapproximately15%oftotalsalesofthenIdairyindustry.ThevalueofexportsfromRoItonIduringthesameyearwasestimatedat£61.6m.HowevertherelationshipbetweennIandRoIdairyindustries goes beyond just the volume and valueoftradealone,RoIdairyco-operatives

own approximately 60% of the processing capacityinnI.

It is therefore essential that when the UK leavestheEUtwo-wayaccessbetweennIandRoIofrawmilk,dairyproductsforfurtherprocessing,andfinishedgoodsaremaintained,without tariffs and free from burdensome non-tariff administrative measures.

AhardborderbetweentheRoIandnIwouldbe the least desirable option for the dairy industry. Failure to achieve a soft border will create uncertainty around the ability of the dairyindustryinnItocontinuetooperateasit does currently, and in a way that minimises costandmaximisesefficiency,tothebenefitof all its stakeholders.

Graph1:northernIrelandMilkandMilkProductSalesbyDestinationin2014

nI GB ROI OtherEU AllEU(exc.GB)

ROW

0

100

200

300

400

£ m

illio

ns

8

STANDARDS

It is also important that the UK does not createnon-tariffbarrierswiththeEUthroughdivergence in standards. Issues that could ariseinclude; • AdoptionbytheUKofmandatoryfront

ofpacktraffic-lightlabellingsystem,currently applied on a voluntary basis in the UK, could become mandatory followingBrexit.Atthemoment,concernsfor the free movement of goods within theEUarestoppingitfrombecomingcompulsory;

• IntroductionofnutrientprofilesbyPublicHealthEnglandaccordingtowhichproducts would not be able to bear claims on pack if they exceeded certain thresholds forsalt,saturatedfatandsugar;

• Introductionofmandatorycountryoforiginlabelling which is currently voluntary in the UK.

Thiswouldcreateadivergenceintheregulatory environment between the UK and theEUwhichwouldalsohaveabearingonUKtraderelationswithnon-EUcountrieswhichis currently conducted on the basis of UK adherencetoEUstandards.

AgRICUlTURAl POlICY

AnothermajoraspectoffuturerelationswiththeEUwillbethedevelopmentoftheUK’sindependent agricultural policy outside the CommonAgriculturalPolicy.

AssumingatarifffreedealwiththeEUcanbereached, the UK dairy sector will continue to havetocompetewithsubsidisedEUfarmers.Therefore,itwillbeimportantforUKdairyfarmerstohavealevelplayingfieldwiththeirEUcounterparts,bymaintainingsimilarlevelsof public support.

SupportundertheEU’sCommonAgriculturalPolicyensuresthatEUmilkproduction is higher than would be the case

without subsidies, which acts to reduce theoveralllevelofEUprices.Inthispriceenvironment, direct payments become central to the viability of UK dairy farming.

RemovingbasicpaymentsintheUKwouldtherefore have a significant impact on the productive potential of the sector.

Shouldthefinancialresourcesallocatedto direct payments be reduced, these reductions should be compensated by resources being moved to schemes that improve the competitiveness of the sector in order to offset the loss of direct payments.

Table2:AverageDirectPaymenttoDairyFarmersbyUKCountry2015

England

Wales

Scotland

northernIreland

SingleFarmPayment

23,400

18,500

33,611

20,486

Farm Business Income

83,800

70,200

68,471

45,728

Percentage

28%

26%

49%

45%

2.BREXIT

9


CREATION Of A WTO SCHEDUlEInrespectofnon-EUcountriestheUK’s priority should be establishing an independenttariffscheduledintheWTO.TheUKshouldreplicatetheEU’simporttariffschedule to create negotiating leverage forfreetradeagreements.TheUKwouldthenbeatlibertytooperateMostFavourednationtariffsbelowthelimitssetbyitsschedule if it chose to do so.

AgreementwouldalsoberequiredontheUK’sshareoftheEU’sTariffRateQuotas(TRQs)fordairyproducts.Howevernoneofthesequotasplayasignificantroleinmeeting UK domestic demand for dairy products.newZealandnolongerutilisesits butter quota and utilisation rates for theremainingTRQsarehighlydependentonshorttermmarketdevelopments.Thisis because the tariffs associated with each quotaarestillsignificant,consequentlyexporters only have an incentive to utilisetheTRQwhenthereisasufficientdivergencebetweentheEUorUKmarketand the world market price to make payment ofthetariffcommerciallyviable.Thiscan occur at different points in the price cyclebutnotwithsufficientconsistencyto ensure full utilisation from year to year. ConsequentlythetradeundertheseTRQsisshort term and price driven.

TheUKwillalsohavetonegotiateitsshareofWTOrestrictionsonEUdomesticsupportalthough this is not expected to be a major issue.

UK SHARE Of EU ExPORT TARIff RATE QUOTASUnder a range of trade agreements the EUhasanumberofTRQsfordairyexportstonon-EUcountries.TheyincludeUSA,DominicanRepublic,Switzerland,norwayandSouthKorea.TRQsforexportstoCanadaandJapan will become available before Britain leavestheEU.

ThemostimportantexportTRQfortheUKdairyindustryiswiththeUSA.TradeoutsidethisTRQforhighvaluecheesesisoftenundertaken.HowevertheseTRQsareimportanttoUKcheeseexporters.TheUK Government should seek to negotiate acontinuingshareoftheseTRQsbasedonhistoric utilisation.

fUTURE fREE TRADE AgREEMENTS WITH NON-EU COUNTRIESDairy UK supports the Government seeking expanded trade opportunities outside the EUfortheUKdairysector.Ifthedairysectoris to realise its full potential then it needs to findgreatermarketopportunitiesoutsidetheUK.However,anyfutureagreementsshould be balanced and not prejudice the UK dairy industry’s position in its home market or its existing export markets, particularly theEU.

Tobenefitthesectortradeagreementsmust provide greater market access for dairyproducts.Agreementsshouldpromoteoffensive dairy interests through improved market access in terms of zero tariffs and noTRQs.Anotherprerequisitetoachieving

TRADE WITH NON-EU COUNTRIES

10

market access is to solve any barriers to trade andtopromoteagreementscoveringSanitaryand Phytosanitary issues and to achieve equivalence agreements.

Defra needs to ensure adequate resources to support and overcome administrative issues inrelationtoincreasedexport.Thisincludesworking on improvements to the export health certificateadministrationsystem.

TARgET MARKETSFor the UK dairy industry the ideal candidates forFTAswouldbecountriesthatprovidedacombination of:

* Anexistingtradedeficitindairyproducts.ThiswouldclearlyhelptoensurethatanyFTAwouldworktoclosetheUK’stradedeficitindairyproducts.

* Rapidlyexpandingdemand.Achievingmarket share in a rising market is easier than in a stable market. Globally rapid urbanisation, rising disposable income and change in dietary preferences is generating significantgrowthopportunitiesfordairy.

ThesetwofactorswouldtendtowardsseekingFTAswithcountriesinthefar-eastandChinain particular. Other target countries would be in the middle-east.

FurthercriteriawouldbeaffluentcountrieswithafoodcultureclosetotheUK.Thiswouldenable exporters to exploit their existing productrange.ThiswouldincludeCanada,

USAandAustralia.Incombinationthesefivetargetcountries/regionsarethoseidentifiedin Dairy UK’s export strategy as providing the greatest commonality in the export strategies being pursued by Dairy UK members.

TheUKGovernmentwillbeunderstrongpressuretoconcludeearlyFTAswiththeUK’straditionaltradingpartners.Careneedstobe taken to ensure that the industry pricing structure in these countries do not allow them to utilise below cost pricing to obtain and sustain market share in the UK market. In addition the Government must ensure that the production practices in these countries do notundermineUKconsumerconfidenceinthewholesomeness and safety of dairy products.

AnumberofUKdairyproductshavebeengrantedprotectedstatusundertheEU’sPDO/PGIscheme.ThebenefitsaccruedtotheseproductsshouldberecognisedinanyFTAnegotiated by the UK.

UK fOOD SAfETYAprerequisitetotheUKdairyindustrymaintaining and expanding exports is confidenceinthesafetyofUKdairyproducts.TheUKGovernmenthasavitalroletoplayin demonstrating to other countries the effectiveness of the food safety systems operated by UK authorities and by the industry.ThisrequirestheGovernmentto invest in the resources and expertise to communicate on this issue to foreign Governments, particularly during and after inspection visits.

2.BREXIT

11


THE RISKS Significanttariffbarrierswouldundermineexports, reduce domestic demand for dairy, provide an incentive for the growth in sales of dairy substitutes and disrupt the operation of the northernIrelandindustry.ImportsfromtheEUwould become prohibitively expensive, impacting wholesale prices negatively- with wholesale cheddar prices potentially increasing 51% in the eventofnodealbeingreachedwiththeEU.

non-tariffbarrierswouldresultindisruptionoftradeand imposition of additional costs on the industry.

EnsuretradingarrangementswiththeEUcontinuewithouttariffandnon-tariffbarriers

THE OPPORTUNITIES Minimisingdisruptiontotradewouldensure continued access to one of the largest most solvent dairy markets in the world, which presents the UK with considerable potential for sales growth in the future.

THE RISKS Unlike other areas of agriculture, dairy farming requires a steady level of labour throughout the year,asopposedtoseasonalfluctuations.Withover70,000 employees currently working in the dairy sector, producing over 14 billion litres of milk a year, it is an important cornerstone of the UK economy.

SoanyinabilitytorecruittrainedoruntrainedEUlabour would have a big impact on the dairy sector, driving up operating costs, with a consequential impact on margins.

For many individual dairy farmers, the absence of an alternative domestic source of labour would threaten the viability of their businesses.

Ensurethereiscontinuedaccesstoskilledandunskilledlabour

THE OPPORTUNITIES Solutionscouldbefoundtoaccessnon-EUlabourthatwouldenabletheindustry to maintain its current scale of operation.

THE RISKS AnydivergenceintheUK’sregulatoryenvironmentcould create de-facto barriers to trade that would inhibit export growth.

Ensureanyreviewofexistingregulationsortheintroductionofnewregulationswillnotcreatenon-tariff barriers

THE OPPORTUNITIES Arecognitionoftheneedforequivalence of standards between theEUandUKwouldfacilitatethatcontinuation of existing trade at minimum cost.

BREXITAnDTHEDAIRyInDUSTRy:RISKSVs.OPPORTUnITIES

12

TakestepstoensureUKfarmersarenotdisadvantagedcomparedtotheirEuropeanneighbours,and that any future schemes put in place by government reward continual improvements in efficiencyandfarmingbestpractice

THE RISKS Giving excessive emphasis in agricultural policy to environmental pillars of sustainability would underminethecompetitivenessofthesector.Thiswould happen especially in a regional dairy market, whereEUfarmerswouldbereceivingcontinuedhigh levels of income support.

THE OPPORTUNITIES Policy solutions could be found which allow public support to be more effective in enhancing the sustainability of the sector, whilst permitting a reconfigurationofpolicyobjectives.

THE RISKS Arushedtransitionwoulddisruptsupplychainsand undermine the presence of UK companies in theEUmarket.

Allowforanadequatetransitionperiodtostabilisethetradingenvironmentandallowcompanies adequate time to overcome any hurdles associated with Brexit and to take advantage of the opportunities Brexit gives rise to

THE OPPORTUNITIES Allowingadequatetimeforplanningand implementation of all changes would ensure optimum use of industry resources.

THE RISKS TheRepublicisasignificantexportmarketfornorthernIreland,accountingfor15%ofentireindustrysales,withimportsfromtheRepublicalsoplayingakeyrole.Anyhardborderwouldimpactdeeply embedded supply chain relationships wouldbeundermined,resultinginasignificantdisplacement of product onto the domestic UK market with a consequentially negative impact on producerpricesandprocessorsprofitability.

WorktoaddresstheborderissuesinnorthernIreland

THE OPPORTUNITIES Thecreationofafrictionlessandseamless border regime could provide a future template for trade relations with therestoftheEUafterBrexit.

THE RISKS TheUKdairyindustrycouldloseestablishedpositions in valuable exports.

EnsurethatcompaniesacrosstheUKhaveongoingaccesstothirdcountriesbasedonexistingEUFTAs,untiltheUKcannegotiatealternatives

THE OPPORTUNITIES Maintainingpathwaystomarketwillenable the industry to realise growth opportunities from established positions whilst providing the scale of operation in exports to exploit market opportunities fromFTAsnegotiatedbytheUK.

13


14

ANIMAl HEAlTH AND WElfARE

3.

15


Dairy farmers have a vested interest in maintaining the health and welfare of their dairycows.Therearepowerfulmoralaswellas economic reasons for keeping livestock healthy and productive for as long as possible.

In order to ensure dairy farmers meet benchmark standards of animal welfare and productquality,theindustrysupportsTheRedTractorFarmAssuranceDairyScheme(www.redtractor.org.uk).TheschemeispartofAssuredFoodStandards(AFS),andisoverseenby a board nominated by Dairy UK, the farmingunions,AHDB,BritishCattleVeterinaryAssociationandtheBritishRetailConsortium.

Thesefarmassurancestandardssetahighbarfor animal welfare so that consumers can be confidentthattheirmilkanddairyproductsare produced responsibly and respectfully. Under the scheme, farms are inspected every 18 months and the quality of the assessor is furtherverifiedbyacomplianceandintegrityprogramme consisting of regular training and witnessed assessments.

TheUKdairyindustrytakesthehealthandwelfareofdairycowsandrelatedstockextremelyseriously.Theindustryhasavarietyofinitiativesunderway to maintain and improve standards, overseen by an overarching strategy.Measurableimprovementsarebeingachievedatfarmlevelandtheindustrycanbeconfidentthattacklinganimalhealthandwelfareisoneofitsdefiningcharacteristics.

AttheendoftheOctober2015toSeptember2016 year, the scheme covered 64 milk purchasers, 11,158 milk producers and the 14 billion litres of milk that they produce.

Theschemeisbeingcontinuouslydevelopedwith standards being subject to a regular processofreview.FromOctober2013,assessors were required to score a sample of cattle against welfare indicators and discuss the results with farmers. From October 2017 amongst a range of changes, industry standards on medicines and veterinary engagementwillbetightened.Medicinerecords must provide an annual collation of total antibiotic used for the unit, either by a vet from prescription data or completed by a farmer from medicine records, and an annual review of antibiotics used must be undertaken by a vet.

UndertheEUHygieneRegulation,theFSAisrequired to inspect dairy farms. Because of the robustnessoftheRedTractorScheme,dairyfarmsinEngland,WalesandnorthernIreland

fARM ASSURANCE

16

have had the frequency of inspection by the FSAreducedfromonceayeartoonceevery10 years, in recognition of the lower level of risk associated with farms complying with the farm assurance scheme.

Theindustryalsorunsaninitiativetomanageand reduce the incidence of Johne’s Disease inthedairyherd.TheinitiativeisoverseenbytheActionGrouponJohne’swhichhasdevelopedthenationalJohne’sManagementPlan.Theplanrequiresfarmerstoimplementone of the six control strategies developed by theActionGroupandforcompliancetobecertifiedexternallybyvets.Theinitiativehasbeen successful in raising farmer awareness and engagement with the issue.

OthersignificantinitiativesincludetheprogrammetoeliminateBVD(BovineViralDiarrhoea)andimprovementsincowgenetics.

Thefuturedevelopmentofwelfarestandardsfor dairy cows is set out in the industry’s Dairy CowWelfareStrategywhichhasbeenjointly

developedbythenationalFarmers’UnioninconjunctionwithAHDB,theRoyalAssociationofBritishDairyFarmers,BritishVeterinaryAssociation,BritishCattleVeterinaryAssociationandDairyUK.

In combination, this range of initiatives is producing improvements in dairy cow longevity and cow fertility. Industry progress is recorded as the regular reports compiled byCHAWGwiththelatestbeingpublishedinnovember2016.

3.AnIMALHEALTHAnDWELFARE

17


• Recognisetheachievementsoftheindustryindrivingforwardimprovementsinanimalhealthandwelfare;

• GivedueacknowledgementtoRedTractorstandardsinpublicprocurementdecisions;• Supportthesector’sinitiativestotacklespecificanimaldiseaseissues.


18

DAIRY fARMINg4.

19


UKdairyfarmersareprofessional,dedicatedandefficient.UKdairyfarming is internationally competitive with a considerable latent capacity forgrowth.Thisputstheindustryinastrongpositiontoexploitgrowingexport opportunities and to make a major contribution to global food security. Dairy farming is constantly restructuring and relocating to optimiseefficiency.Inresponsetotheglobalisedpriceenvironment,theindustryhasdevelopeduniquecontractualrelationships.ThestrengthofUK dairy farming is the UK dairy industry’s foundation for the future.

DAIRY fARMER NUMbERS

Theprocessoffarmrestructuringiscontinuousinthedairysector.Historicallythisgeneratesan annual rate of decline in farm numbers of around 4%, but with some variation depending onpricelevels.In2012therewereasignificantnumber of new entrants into the industry which reduced the rate of exit.

Thenumberofanimalsinthenationalherdhas

Table3-AverageHerdSizeintheUK-asatJune

been falling, but an offsetting rise in average milk yield per cow has eliminated any impact onproduction.Theaveragefarmsizehasalsobeen rising.

Thetrendtowardsfewer,largerfarmsisalmost universal throughout the developed world,buttherateofexitintheUK(-3.2%)islowcomparedtotheEU27average(-6.5%).

2010

2011

2012

2013

2014

2015

2016

Holdings

15,300

14,793

14,413

14,276

13,922

13,570

13,227

DairyHerd(000Head)

1,830

1,796

1,796

1,782

1,841

1,895

1,897

AverageHerdSize

120

121

125

125

132

140

143

21

Graph2–nationalHerdSizeandnumberofHoldings(newseriesfrom2006)

nu

mb

er

of

Ho

ldin

gs

27,000

24,000

22,000

19.000

14,500

29,500

17,000

12,000

Ave

rag

eH

erd

Siz

e

1995

1997

1999

2001

2003

20052007

2009

201120

132015

32,000

34,500

37,000

110

100

90

80

60

120

70

50

130

140

150

noofHoldings

AverageHerdSize

Graph3–%DeclineinEUProducernumbers(2013/14to2014/15)

Bu

lgar

ia

Ro

man

ia

Cro

atia

EU

27

Gre

ece

Hu

ng

ary

Po

rtu

gal

Au

stri

a

Ge

rman

y

Latv

ia

Po

lan

d

De

nm

ark

Slo

ven

ia

Fra

nce

Fin

lan

d

Sp

ain

Ital

y

Ire

lan

d

Slo

vaki

a

Be

lgiu

m

Luxe

mb

ou

rg

Sw

ed

en

Un

ite

d K

ing

do

m

Cze

chR

ep

ub

lic

ne

the

rlan

ds

Lith

uan

ia

-18.0%

-16.0%

-14.0%

-12.0%

-8.0%

-4.0%

0.0%

-10.0%

-6.0%

-2.0%

Est

on

ia

4.DAIRyFARMInG

22


MIlK OUTPUT

MilkproductionintheUKrespondsrapidlytomarketcircumstance.MilkproductionreachedhistoricallyhighlevelsinMarch2015dueto

MIlK PRICES

ThepriceofrawmilkintheUKisdrivenby the world market for dairy products. Thederegulationoftherawmilkmarketmeans that prices are set by commercial negotiations between individuals, or groups of farmers, and milk buyers in a freeandcompetitivemarket.Thishasgiven internationally traded commodities a prominent role in the determination of milk price trends, along with movements in the valueofsterling.Commodityproductssuchasbutter,powder,andmildCheddarsettheunderlying trend in the farm gate price of raw milk in the UK.

When commodity prices fall, operators selling raw milk for commodities have an incentive to offer this milk into higher returning markets, so the price of raw milk used in other products thenfallstoremaincompetitive.Likewise,whencommodity prices rise, milk buyers have to raise the premiums they pay over commodity milk in order to secure their supply of milk.

Theinherentvolatilityofglobalmilksupplymeansthatcommoditypricesarecyclical.Short-term price cycles can mask the long term price trends upon which the industry needs to base investment decisions.

high prices but fell quickly when the market situation reversed. It has since started to recover as prices have risen.

2014/15 2015/16 2016/17 2017/18

1,300

1,100

1,400

1,200

Mill

ion

litr

es

Graph4–UKWholesaleMilkDeliveries

Source:RuralPaymentsAgency

April1,000

May June July Aug Sept Oct nov Dec Jan Feb Mar

22

CURRENT MIlK PRICES

Currentlyprices,asofAugust2017areonanupward trend. Prices weakened in 2014 due to rising global milk supplies, particularly in Europefollowingtheabolitionofquotas,aslow-downinpurchasingbyChinaduetothe build-up of stocks in that country and the

importbanonEUproductsimposedbyRussia.Thisgeneratedaprolongedpriceslump.Howevermarketssubsequentlyre-balancedthrough the curtailment of production growth and the underlying upward trend in global demand.

Commodityprice

180

160

140

120

80

200

100

Graph5–FarmGatePriceVersusCommodityPrice(butter/SMP/mildCheddar)–Movingannualmean

Source:DairyUK

60

Farm gate

Jan0

3

Jan 0

4

Jan 0

5

Jan 0

6

Jan 0

7

Jan 0

8

Jan0

9

Jan 10

Jan 11

Jan 12

Jan13

Jan 14

Jan 15

Jan 16

Jan 17

2014/15

32

22

36

28

Pe

nce

pe

r lit

re

Graph 5 – UK Farm Gate Price

Source:Defra

April18


2015/16 2016/17 2017/18

34

24

30

20

26

4.DAIRyFARMInG

23


Over the past few years, several major retailers have put in place ‘integrated supply arrangements’. In many respects these arrangements are unique to the British dairy industry.

Under these systems, a retailer obtains their supply of liquid milk exclusively from a specificgroupoffarmers.Therawmilkfromthese farms is processed under segregated arrangements and delivered to the retailer as liquid drinking milk.

Table4–IntegratedSupplyChainRelationshipsfortheLiquidMarket

CONTRACTUAl ARRANgEMENTS IN THE DAIRY INDUSTRY

Farmers generally receive a higher price under these arrangements, which vary from retailer to retailer(seetablebelow).Assuch,farmersonsupermarket contracts are partially insulated from the price trends in commodity markets.

In exchange for participating in integrated supply arrangements, farmers may be required to deliver different welfare requirements, meet particular environmental standards set by the retailer, or share detailed information on farm performance data.

ContractualrelationshipsintheUKdairyindustry are highly developed and, in many ways, unique across the world.

INTEgRATED SUPPlY ARRANgEMENTS

Retailer

Marks&Spencer

Waitrose

Asda

Sainsbury’s

Co-op

Tesco

Morrisons

Booths

noof

Farmers

40

60

250

290

200+

800

300

-

PricingSystem

Formula taking account of costs and market returns

negotiationtakingaccountofcapitalinvestmentrequirements

FarmersengageasAsdapathfindergrouptoimproveonfarmefficiency

Quarterlyreviewofkeyfarminputcosts

Marketrelatedpricesreviewedquarterly

Formula taking account of costs

CompensationtocovercostsincurredtoachievestandardsoverandaboveRedTractor

Guaranteed‘FairMilk’price

fINANCIAl POSITION

Onaverage,UKdairyfarmersareprofitableeven in challenging market situations but with ahighdegreeofvariationbetweenyears.Thevariationinprofitabilitycreatesenormouschallenges for dairy farmers not least in deciding

longterminvestmentdecisions.Profitabilitypeaked in the two years to February 2014 and 2015 but subsequently fell back as milk prices fell.ThesituationfortheyeartoFebruary2018isexpected to improve considerably.

24

Table5–AverageFarmBusinessIncomeperDairyFarm(£)

England

Wales

Scotland

n.Ireland

2011/12

86,500

68,000

82,000

58,000

2013/13

52,500

45,000

45,500

28,000

2013/14

88,000*

77,000*

78,000

61,500*

2014/15

84,000*

70,000*

69,000

45,500*

2015/16

44,000*

33,000*

2,000*

12,000*

2016/17(prov)

22,500*

24,500*

n.a.

14,000*

*newseries|Source:Defra

EffICIENCY

ThediversityoffarmingsystemsandtherangeofefficiencybeingachievedishighlightedbytheevidencecollectedbyAHDBDairyfrom328farm accounts with year ends falling between December2015andJune2016.Thekeyfindingsofthisanalysisare;

• Fullinvestmentcostsofproductionwere20%lower in the top quartile compared with the bottomquartileofGBdairyfarms;

• ThetopquartileofGBproducersachievedapositivenetmarginof4pplin2015/16.Incontrast, the bottom quartile made a loss after all costs of 7.6ppl, a range of over 11ppl, similar to2014/15.

Thisshowsthesignificantlatentpotentialforproduction increases available to the industry throughimprovingefficiency.

ThekeyfindingsfromthemoreextensiveMilkbench+reportin2013wasthat;

• Thekeydeterminantofprofitistotalcostofproduction;

• Averageyieldpercowisnotthemaindriverofprofit;

• Therightbalancebetweeninputuseandmilkoutput(herdsizeandaverageyield)isessentialforhighnetmargin;

• Milkcanbeproducedefficientlyfromanyofthesystemsidentifiedandatalmostanyscaleof production.

Table6–AnalysisbyProductionSystem

Top5%

Top25%

Bottom 25%

Bottom 5%

Full investment net margin:

PencePerLitre

7.3

4.0

-7.6

-12.0

ThekeyconclusionsdrawnbyDairyCo(nowAHDBDairy)were;

• Thereisnosilverbulletwhichensuresprofitability;costcontrolthrougheffectivemanagementisthekey;

• Achievingthemostcost-effectiveperformance levels in terms of milk yield and feed use and in the resulting total costs of production, requires regular recording, monitoring of performance and effective use oftheresultingdata;

• Thereisnoidealherdreplacementrate,understanding the reasons for replacements aremoreimportantthanthenumber.Realistictargets should be set as a part of strategic managementofindividualdairyenterprises;

• Itisimportanttomaintainaleveloffixedcosts appropriate to the level of output. Investment should be aimed at improving productionefficiencyanddecreasingunitcostof production.

4.DAIRyFARMInG

25


RESTRUCTURINg AND EffICIENCY

Once dairy farmers have maximised their efficiencyforanygivenscaleofproduction,they need the opportunity to expand their businessestocontinuetoimproveefficiencythrough achieving economies of scale by spreadingfixedcostsoveralargerscaleofproduction.Thismeansthatthereisastrongcorrelationbetweenfarmsizeandefficiency.

Herdsize(cows)

TotalDairyOutput

TotalVariableCosts

TotalGrossMargin

<80

1,541

777

765

80-130

1,734

823

911

>130

1,973

950

1,023

Source:Universityofnottingham

“FarmBusinessSurvey2015/2016–DairyFarminginEngland”

Table7–AnalysisofEfficiencybyHerdSize

LowlandHerds(£percow)

Milkproductionfollowsaseasonaltrend,withatraditionalpeakproductioninMayafter the calving season and a trough in October/novemberasgrassbecomespoorer. Weather conditions can have a big impact, and the level of butterfat and protein in milk also varies seasonally.

Theseasonalityofmilkproductionhassignificantlyimprovedsincethe1980s,whichreflectsasustainedeffortbytheindustrytoincentiviseaflatterprofileofproduction.Thisreflectstheimportanceofmaintaining a continuous supply of milk for the UK fresh product markets, particularly liquid milk, which accounts for half of milk utilisation.

SEASONAlITY Of MIlK PRODUCTION

1984/85

40

55

Mill

ion

litr

es

pe

rd

ay

Graph7–Seasonalityofmilkproduction

Source:DairyUK

April30


2016/17

50

35

26

Production is becoming increasingly concentrated in the southwest and northwest ofEngland,mainlyDevon,Somerset,CheshireandCumbria.Thereisalsoasignificant

Figure1–MapofUKWholesale

DeliveriesMarch2014

gEOgRAPHICAl DISTRIbUTION Of MIlK PRODUCTION

> 600 million litres

300-600millionlitres

100-300millionlitres

50 -100 million litres

20 - 50 million litres

< 20 million litres

movementinvolumefromEnglandtoWales,ScotlandandnorthernIreland,indicatingincreasingproductioninthesecountries.Thisprocess can be expected to continue.

4.DAIRyFARMInG

27

DAIRyInDEVELOPInGFUTUREAGRICULTURALPOLICy,DAIRyUKISCALLInGOnTHEGOVERnMEnTTO;

• Ensurethatifthefinancialresourcesallocated to direct payments are reduced, these reductions be compensated by resources being moved to schemes that improve the competitiveness of the sector, in order to offset the loss of direct payments;

• Recognisethenecessityforcontinuedfarmrestructuring;

• Recognisetherangeanddiversityoffarming systems and not give undue preference to any particular management system;

• Placeprotectingandenhancingthecompetitiveness of the dairy sector at the coreofallaspectsofagriculturalpolicy;

• Toworkcollaborativelytodeveloppolicyinstruments which help to mitigate the effects of pricevolatilityonfarmincomes;

• Ensurethatrealisticandcomprehensiveassessments of income forgone should remain the basis for calculating aid for the supply of publicgoods;

• Seektominimisecompetitivedistortionsthatcould result from differences in the agricultural policiesofthecountriesoftheUK;

• Ensureappropriatetransitionperiodsifthecurrent range and balance of agricultural policy instrumentsistoberadicallyaltered;

• Recognisethegrowingchallengeofensuringanadequate supply of trained labour to the dairy farming sector.


28

MIlK COllECTION5.

29


Milkiscollectedfromfarmsbymilkhauliersusingafleetofapproximately1,300vehiclesdriven by over 2,000 drivers.

Milkcollectionvehiclesaretypicallyoperatedby hauliers contracted by milk purchasers, but around15%ofthevehiclefleetisownedandoperated directly by milk purchasers.

Over90%ofthemilkhaulagecapacityintheUKiscoveredbytheDairyTransportAssuranceScheme(DTAS),theindustry’sassuranceschemeformilktransport.Thescheme provides assurance to milk purchasers that the transport of raw milk and milk fractions meets food safety requirements, recognisedindustrygoodpracticeandspecificcustomer needs.

Theschemeisbasedonannualinspectionsofthe milk haulage depots operated by scheme members and the assessment is conducted againstarangeofstandardscoveringfleetandequipment, milk quality, hygiene and security, out-based reload sites, personnel, training and general management and further checks are carried out by a system of random audits.

TheUKmilkcollectionindustryisefficient,flexibleanddynamicandcommitted to operating to the high professional standards demanded by the industry’s assurance scheme for milk haulage.

AllmembersmusthaveadocumentedHazardAnalysisandCriticalControlPoint(HACCP)system in place that fully covers all aspects of milk collection and delivery.

TheScheme’sstandardsarereviewedannuallyandtheSchemeisadministeredbyDairyUKandoverseenbyaManagementCommitteedrawn from major milk purchasers and milk hauliers in the UK.

AlongsidetheRedTractorAssuranceDairySchemeforonfarmproductionandtheBritishRetailConsortiumstandardsforfoodprocessing,theDTASschemecompletesthepropositionbehindtheRedTractorlogooffarm to fork assurance of the dairy supply chain.Confidenceintherobustnessofthescheme is demonstrated by the fact that from April2015ithasbeenarequirementthatalldairyproductscarryingtheRedTractorlogohavetousemilkhauledbyaDTASapprovedhaulier.

Details of the scheme, along with all relevant documentation, can be found at www.dairytransport.co.uk.

30


• LiaisecloselywithDTASonanyemergenciesaffectingthenationaltransportinfrastructurethat affects the collection of raw milk

5.MILKCOLLECTIOn

31


32

MIlK PROCESSINg6.

33


MilkpurchasingandprocessingintheUKisledbywell-established,highly-invested, dynamic operations. UK processors have a proven track record of meeting the demands of major domestic and international retailers and food service companies.

Asignificantinternationalcomponentintheownershipofprocessingcapacity gives the industry a strong global dimension, and farm ownershipofprocessingcapacityissignificant.Theindustryboastsparticularstrengthintheefficientprocessinganddistributionoffreshproducts, and the variety and diversity of its cheese sector.

INDUSTRY ORgANISATIONS

AlphabeticallythesixmajororganisationsleadingtheUKdairyindustryare;

• ArlaFoodsUK,aEuropeanfarmerownedco-op(www.arlafoods.co.uk);

• DairyCrest,apublicUK-basedPLC (www.dairycrest.co.uk);• FirstMilk,aUK-baseddairyfarmingco-op

(www.firstmilk.co.uk);• GlanbiaCheese,ajointventurebetween

GlanbiaplcandLeprinoFoodsCompany(www.glanbiacheese.co.uk/);

• MüllerUK&Ireland,aGerman-basedprivately owned dairy company

(www.muller.co.uk);• DaleFarmCo-op,aUK-baseddairy

co-op(www.dalefarm.co.uk).

With a relatively low level of industry concentrationcomparedtootherEuropeansectors further opportunities for industry rationalisation and merger still exist.

INTERNATIONAl INVESTMENT

ManyUKmilkprocessorsare,orareownedby,internationally-based companies. In addition toArlaFoodsUKandMüllerUK&Ireland,othercompaniesintheUKwithasignificantinternationaldimensioninclude;

• GlanbiaCheese,ajointventurebetweenGlanbiaplcofIrelandandLeprinoFoodsofUSA(www.glanbiacheese.co.uk);

• CaledonianCheeseCompany,whoareownedbyLactalisofFrance

(www.grouplactalis.co.uk).

By providing additional access to capital and foreign markets this international dimension complements the strength of UK based operators.

34

Theoverwhelmingmajorityofdairyfarmersare contracted to sell their milk to either private dairy companies or to co-operatives. Only a small fraction is marketed directly to consumers by farmers through on farm processing facilities.

Similarlyprocessorsonlysellasmallportionoftheir output direct to consumers through the doorstepdeliveryservice.Themajorityissoldto intermediary organisations such as retailers who then sell the product to consumers.

ArecentinnovationinthesupplychainistheadventofProducerOrganisations.These

THE SUPPlY CHAIN

1%

Farmers

Producers99%

Processors

Privatedairies64.9%

Co-opprocessing

35.1%

Customers

Doorstep3%

Retailers70%

Food Processors, Catering

16%

Exports11%

Consumers

UK

EU

non-EU

Livestock

Producer organisations

5.7%

Farmers selling direct to consumers

Figure2.IndustrySupplyChain

organisationsarepermittedunderEUlawtorepresent dairy farmers in price negotiations withprivatedairycompanies.Thelegalfoundation for Producer Organisations is providedbytheEU‘DairyPackageof2012’.

SofarDairyCrestDirectisthesoleexampleof a PO in the UK but other organisations are expected to emerge. In addition to negotiating prices, POs can provide the basis for a much closer working relationship between farmers and processors and can potentially address a whole range of issues from production standards to benchmarking.

6.MILKPROCESSInG

35


Farmer ownership of milk processing capacity issignificant.Itisestimatedthatproducerco-opsaccountfornearly35%ofthemilkprocessed in the UK.

fARMER OWNERSHIP Of PROCESSINg CAPACITY

ThistookaconsiderablestepforwardwiththemergerofArlaFoodsandMilkLinkinOctober 2012 and the conversion of the majorityofArla’ssupplyingfarmersintofullco-op membership on 1 January 2014.

STRUCTURE Of MIlK PROCESSINg SITES

Theindustryhasinvestedheavilyinextremelylarge,efficientprocessingfacilities,particularlyin the liquid milk sector.

In the United Kingdom, dairy facilities which process over 100 million litres of milk account forover90%ofthevolumeofmilkprocessed.

In the cheese sector facilities over 10,000 tonnes per annum account for over half of processing capacity.

15

40

30

% m

ilk p

roce

sse

d b

y co

-op

era

tive

s

Graph8–EvolutionofCo-opProcessing

Source::IndustryFiguresandDairyUKEstimates

20090

2010 2011 2012 2013 2014 2015 2016

20

35

5

25

10

36

Under 5,000

5,001 – 20,000

20,001 – 50,000

50,001 – 100,000

100,001–300,000

Over300,000

Total

87

3

2

2

3

2

100

130

157

256

675

1,728

10,851

13,797

number %ofTotal Thousandtonnes

318

12

8

9

11

9

367

% of total

1

1

2

5

13

79

100

Source:Defra

Sizeband(tonnesperyear)

numberofenterprises Volumecollected

*SomesmallercompaniesdonotparticipateinthesurveyThesesizedistributionstablesareproducedeverythreeyearsunderCouncilDirective96/16/EC

Table8.SizeDistributionofDairyEnterprisesbyVolumeofAnnualMilkCollection,UnitedKingdom2015*

1,000 and under

1,001 – 10,000

10,001–30,000

30,001–100,000

Over 100,000

Total

3

2

19

109

162

295

Table9.SizeDistributionofDairyCompaniesbyAnnualProductionofDrinkingMilk,UnitedKingdom2015*


209

15

5

6

7

242

% of total

1

1

6

37

55

100

Source:Defra


numberofenterprises Volumeofmilkproduction


100 and under

101 – 1,000

1,001 – 4,000

4,001 – 10,000

Over 10,000

Total

86

6

2

3

3

100

60

48

104

404

5,874

6,490

Table10.SizeDistributionofDairyCompaniesbyAnnualProductionofCheese,UnitedKingdom2015*


61

10

10

9

5

95

% of total

1

1

2

6

91

100

Source:Defra


numberofenterprises Volumeofmilkproduction


6.MILKPROCESSInG

37

64

11

11

9

5

100


Dairy processors, both cooperative and private, have undertaking a high level of investment in the UK. In the time period for which data is available annual capital investment by the top fivedairyorganisationsintheUKexceeded£100mperannumfrom2006to2013.

INVESTMENT bY DAIRY PROCESSORS

Source:DairyUK

Table11.CapitalInvestmentbytheTopFiveUKDairyBusinesses

yeartoMarch

2006

2007

2008

2009

2010

2011

2012

2013

104.5

119.1

139.2

131.2

126.9

133.6

209.9

265.9

Capitalinvestment(£m)

TheUKdairysectorcontinuestoinvestheavilyin the future of the industry and some of the recentsignificantinvestmentprojectshaveincluded;

• ArlaFoodsUKisinvesting£37.5minitsUKsites and logistics, including £5m to develop capacityattheTawValleyCreamery,£5mattheStourtondairy(includinganewpackingfacility),£3matWestburyand£3.5matAylesburytoallowthesitetobeginproductionoffat-freeskimmedmilk;

• MüllerMilk&Ingredientsisinvesting£60mto upgrade its network of fresh milk and ingredients dairies in Britain, including a newfillinglineatFoston,enhancementto facilities at Droitwich and Bridgwater and the creation of a centre of excellence forflavouredmilkandfreshcreamatSevernside.

38

Availabilityofrawmilk

Imports

Totalavailable

for liquid consumption

for manufacture

Butter

Cheese

Cream

CondensedMilk

MilkPowders

yogurt

Other

Wastage and stock change

Exports

-3.4

-48.2

-3.8

-1.5

-7.7

-6.4

+1.9

-9.3

-0.7

-36.2

+6.6

-5.6

+33.6

+7.2

Table12.Average2015dairyconsumptionperpersonperweek

(Millionlitres)% change

2015-16

Source:Defra

2015

14,366

82

14,447

6,627

6,887

278

4,143

289

247

1,040

318

572

208

725

2016

14,865

158

15,023

6,727

7,464

297

4,066

319

249

1,629

298

605

156

677

PRODUCTION Of PRODUCT

AlmosthalfofthemilkpurchasedbyUKdairycompanies and co-operatives is processed intoliquidmilkand29%isusedforcheeseproduction.Afterthesethekeyproductsaremilkpowders(7%)thencream,butterandcondensed milk.

MostUKdairyproduceisultimatelyintendedfor human consumption, and over 70% is produced in consumer packs for sale. Of this the majority are fresh dairy products, either liquid milk or yogurt, that are distributed throughachilleddistributionchain.Ensuringthe rapid, timely and safe distribution of perishable food products throughout the UK, whilst simultaneously responding to change in consumption trends, is one of the core strengths of the UK dairy industry.

TheUKdairyindustryhastomeettheneeds of a range of different customer types, the most important of which are retailers. Other major customer segments

INDUSTRY CUSTOMERS

include wholesale distributors, catering outlets,institutionalcustomers(hospitals,schools,prisons),foodprocessors,tradersand export customers.

6.MILKPROCESSInG

39


RETAIlERS

Thegrocerymarketisdominatedbyfourmajorretailers—Tesco,Sainsbury’s,AsdaandMorrisons,accountingfor69%ofallsales in Great Britain in the 12 weeks ending 13August2017.Theircombinedshareisdiminishing, however, as the discounters continue to increase their presence with Aldiachieving7.0%ofsalesandLidlmovinghigher to a new record high of 5.2% to become the UK’s seventh largest grocer.

Graph9–ShareofGroceryMarket(%share12weeksending13August2017)

Thegrowthofonlineshoppingisalsohaving an effect as Ocado has achieved a 1.4% market share of the grocery sector.

Thequalityandprofessionalismoftheretailers operating in the UK means that the UK dairy industry successfully addresses some of the most challenging and demanding commercial relationships in the global food industry.

Source:KantarWorldpanel

Tesc

o

Sainsb

ury’s

Asda

Co-oper

ativ

eLi

dl

Waitr

ose

Oth

ers

Icela

nd

Oca

do

Morri

sons

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Aldi

DOORSTEP SAlES

Doorstep delivery, which stands at less than3%oftheliquidmarket,stillremainsafavouritewithmillionsofconsumers.Theindustry sells around 720,000 pints of milk per day direct to the consumer in returnable glass bottles.Thedoorstepsectorisbeingdrivenby an increasing demand for convenience

amongstconsumersandasignificantdegreeof innovation in the type of services and products made available to the consumer.

Dairy UK helps to market the doorstep delivery servicetoconsumersthroughtheFindMeaMilkmanwebsiteatwww.findmeamilkman.net.

40

OUT Of HOME CONSUMPTION

Thesaleoffoodanddrinkforconsumptionoutside the home slowed during the recession but emerging fast food concepts, coffee shops and the proliferation of the street food movement are some of the contributory

INgREDIENTS SECTOR

Thiscoverstheuseofmilkproductsasaningredientinfoodprocessing.Thiscanrangefrom biscuits, cakes and confectionery to ready-made meals. It is an enormously diverse

factors behind an estimated 2.1% growth in value for the UK’s eating out sector in 2016, accordingtoIGD.Theprospectsfortheoutof home sector remain good, with the market forecasttogrowat0.9%annuallyto2021.

sector and the fragmented nature of this marketmeansthatlittledataisavailable.Thissector continues to grow as consumers eat more processed and prepared foods.

6.MILKPROCESSInG

41


• RecognisethatdairyprocessingintheUKisdynamicandinnovative,providingUKandglobalconsumerswithhighquality,nutritious,safeandsustainabledairyfoodsandingredients;

• EnhancetheremitoftheGroceryCodeAdjudicatortocoversmallerretailersandthefoodservicesector;

• ToworkwiththeindustrytoensurethatcompetitionlawcansupportthedynamicandentrepreneurialnatureoftheUKdairysector,givingittheflexibilitytothrive.


42

fOOD SAfETY, QUAlITY AND INTEgRITY

7.

43


Maintainingconsumerconfidenceandtrustinthehealthinessandwholesomeness of dairy products is at the heart of all industry activity. Strictrulesandregulations,aswellascomprehensiveduediligence,ensuresthat the British dairy industry has measures in place to guarantee that the products it sells to the public are free from harmful contaminants and that they are of the highest quality.

In fact, the British dairy industry has put in place one of the most stringent safetyandqualitysystemsinEurope.Thisisaresultoftheimportancethatthe sector places on the excellence of dairy products sold in the UK and abroad.

ANTIbIOTICS

Given the challenge posed by antimicrobial resistance, the British dairy industry is particularly focused on ensuring that antibiotic exposure through the dairy supply chain is kept to a minimum.

Therearemanyapproachestothecontrolofantibioticresiduesinmilk.Theprimarycontrol is on farms and begins with the correct prescription and administration of antibiotics and the careful adherence to withdrawal periods. In short, milk producers must ensure that milk from animals under treatment or in the withdrawal period does not enter the food chain.

Thiscontrolatfarmleveliscomplementedbythe testing of milk for antibiotics undertaken by food businesses at various points in the supplychain.Thisincludestestingoftankersarriving at the dairy processing centres, as well as a representative number of samples from farm bulk tanks.

TheVeterinaryMedicinesDirectorate(VMD)- the UK Government agency responsible for monitoring foods for veterinary medicine residues–hasfoundthat99.9%ofmilksamples have been free of antibiotic residues

overthepastthreeyears.Thisisatestamentto the effectiveness of the industry’s internal safety checks.

nevercomplacent,theBritishdairyindustrycontinues to work hard to minimise the risk of antibiotic residues in milk and does so through a number of cross-sectoral working groups. Ongoingactivitiestoachievethisinclude;

• Deliveringtraining,educationandinformationtofarmersandvets;

• Strengtheningtestingpractices,includingliaising with diagnostic companies to optimise individual test kits.

Forexample,MilkSureisatrainingprogrammedevelopedbyDairyUKandtheBritishCattleVeterinaryAssociationwhichwaslaunchedin2016.ThiscourseisaimedatBritishdairyfarmers and their employees and is provided by vets for their own clients, using a workbook andotherlearningmaterials.Thecoursecovers all the technical and practical aspects necessary to safeguard residue free milk, and aCertificateofAchievementisawardedtothose who complete the training and pass an online test.

44

ANTIMICRObIAl RESISTANCE

Parallel to minimising the risk of medicines residues in milk, to proactively address the issueofAntimicrobialResistanceinApril2017theindustryformedtheDairyAntimicrobialStewardshipGroup.Thegrouphastheremitto create an overarching strategy for achieving the targets for the reduced used of antibiotics beingdevelopedbytheRUMA(ResponsibleUseofMedicinesinAgricultureAlliance)TargetsTaskForce.Thestrategywillidentifythe responsibilities and actions required from organisations participating in the group and other actors within the dairy industry supply chaintoreduce,refineandreplaceantibioticsuse in the dairy herd.

THE DUE DIlIgENCE SCHEME

Anumberofdairyprocessingcompaniesparticipate in the Dairy UK Due Diligence Scheme,whichregularlytestsmilkforarange of substances including heavy metals, mycotoxins, pesticides, veterinary medicines and biocides.

TheSchemeisagreatsuccessamongstdairy companies, and provides them with an effective tool to satisfy themselves, as well as officialinspectorsandcustomers,thatmilkdelivered to consumers is always safe and of the highest quality.

TheSchemeisconstantlyreviewedinordertoensure that the scope of the testing is up-to-dateandinlinewithrelevantnationalandEUlegislation,traderequirementsandfindings

from horizon scanning activities. If abnormal results are detected, further testing is carried out and corrective actions are implemented.

PROTECTED fOOD NAMES AND COMPOSITIONAl STANDARDS

In terms of food quality, the British dairy sector strives to achieve the highest possible standards for its consumers.

AnumberofBritishcheeses-suchasWestCountryFarmhouseCheddar,WhiteandBlueStilton,andSingleGloucester–arelistedintheEUregisterofprotectedfoodnames;thisprovidesthepublicwiththeconfidencethateach one of these products is made in the same geographical area and respecting the same methods of production. Protected food names are important tools for protecting great British products from imitations.

In the UK, the nutritional composition of a wide variety of British cheeses and different types of creams are also currently protected through standards contained in theFoodLabellingRegulations1996.TheannouncementthattheseRegulationswillbe revoked in December 2018 has caused concern amongst the dairy sector as it is believed that, over time, the quality of the cheeses and creams could be affected. For this reason, the industry is working towards thedevelopmentofanIndustryCodeofPractice, which will build on the existing standards in order to ensure the consumer continues to have access to high-quality dairy products in the UK.

7.FOODSAFETy,QUALITyAnDInTEGRITy

45


fOOD INTEgRITY

Followingthehorsemeatscandalin2013,theElliotReviewwaspublishedin2014toreviewthe integrity of the UK food supply chain and to make recommendations to prevent food fraud and protect consumers.

TheBritishdairysectorhasalreadytakenmajor steps towards restoring consumer confidenceandprotectingbusinessesfromfood crime, including product and ingredient testing, horizon scanning activities and information sharing with a wide range of stakeholders.

Dairy companies in the UK will continue to strengthen their engagement in this area to guarantee the integrity and authenticity of their products.

46


• Workcollaborativelywiththeindustrytounderstandcurrentpracticesforminimisingantibioticresiduesinmilk,andhelpbuildontheseinaneffectiveandconstructiveway;

• Retainthecompositionalstandardsoncreamandcheesepost-2018,andworkcloselywiththe industry to identify the appropriate actions and next steps in achieving this.

HEAlTH & SAfETY AND TRAININg

8.

47


Thedairysectoriscommittedtotheprotectionanddevelopmentofitsstaff.

HEAlTH & SAfETY

HealthandSafetyinthedairyprocessingindustry continues to improve, with an accidentratein2014/15of451/100,000workers,whichislessthanhalfthefigureofthree years ago, but the industry’s aim is to improve this further.

Thetoptwoaccidentsinthedairyprocessingindustryremainslips&tripsandmanualhandling which represent almost two thirds ofthetotal.Thedairyprocessingindustryemploys23,000people,whoworkfor400 companies, both a mixture of large employersandSME’s,andapartfromthe health and safety considerations in processing they are also a large distributor ofproducts,whichinitselfprovidesspecifichealth and safety risks in retail, wholesale and doorstep delivery businesses.

Due to the improved safety of the dairy industry,itwasmovedbytheHealthandSafetyExecutive(HSE)in2015fromitshighestcategoryA(proactiveintervention/inspection)intocategoryB(targetedproactive intervention on particular processes, occupational groups or duty holders).

TheHSEprovidessupporttotheDairyUKOccupationalHealthandSafetyCommittee(OHSC),whichismakingstringenteffortstofurtherreduceaccidentratesby;

• Providingoccupationalhealthandsafetyleadership and direction to its members through engagement with large and small tomediumsizedorganisations;

• Promotingcompetenceacrosstheindustrythrough the application of good practice andHSEguidance,togetherwithsafebehaviours;

• Includingthewholesupplychainfromfarm collection to customer distribution, encompassing the work of third party contractors, employees and trade unions.

• Ensuringriskstohealtharewellknownandprovide a focus to reduce occupational ill healthinkeyriskareas;

• Identifyingandpromotingmeasureswhichcan help dairy companies to improve their healthandsafetyculture;

• Deliveringgoodpracticeguidesforthebenefitofallmembers.

ThecurrentfocusisonpromotionoftheFoodandDrinkManufactureForum’sCommonStrategydocument2016-2021andencouragingmembers to sign up to the voluntary pledges to support the health and safety improvement objectivesoutlinedwithinit.Theseinclude;

• ReducingtheHSERIDDOR(Reportingof Injuries, Diseases and Dangerous OccurrencesRegulations2013)reportableill-health and injury rate for the food and drink manufacturing sector by 10% year-on-year;

• EffectivemanagementofMusculoskeletalDisorder risks and slip and trip risks by member companies, including introduction ofactionplansandtask-specifictraining;

• MembercompaniesdeployinganeffectiveOccupationalHealthmanagementsystemanddevelopingcloserlinkswithOHproviders.

48

TRAININg

Atbothafarmingandprocessinglevel,theUK dairy sector is undertaking a range of training and knowledge transfer initiatives, to better equip future farmers and employees with skills for the future.

PROjECT EDENWith a skills shortage within the technical areas of production and developments in technology changing employee skill sets, the industry decided to invest in recruiting and training young people and help equip them for a rewarding and varied career in thedairyindustry.Asaresulttheindustryhelped set up a world-class, three year degreecourseatReaseheathCollege,calledProjectEden.

ThecoursewasdevelopedbyDairyUKmembers,alongwithReaseheathCollegeandthenationalSkillsAcademyforFoodandDrink.Studentsonthecoursebenefitfrom state-of-the-art dairy facilities, built in 2010 and costing around £2.7m, meaning they can work with cutting edge technology and research while they train.

TheinvolvementofDairyUKmembersalong with other key industry bodies in the development of the course has meant that students graduate with the full range of skills the industry needs, regardless of the company they go on to work for.

ReaseheathhasoneofitsbiggeststudentintakeseverfortheProjectEdencoursethis year, with over 40 students enrolling to begin study.

THE AgRICUlTURE AND HORTICUlTURE DEVElOPMENT bOARD (AHDb) AND DAIRY PROAspartoftheirremit,AHDBDairyseektodeliver sector-tailored knowledge transfer programmes, based on evidence from targeted research and development and third-partyscience.Theiraimisultimatelyto improve business performance and the efficiencyofmilkproductionsystems.

AHDBresearchdemonstratesthatthosewhokeep up-to-date with industry knowledge, best practice and management skills, and encouragetheirstafftofollowsuit,findthebenefitsofdoingsoreflectedintheprofitabilityoftheirbusinesses.Inrecognitionofthebenefitsofprofessionallearninganddevelopment,in2012DairyProwaslaunched;a specialist professional development schemeforthedairyindustry.Createdforthe industry, by the industry, Dairy Pro recognises that professional learning is linked to improved motivation, greater productivity and ultimately better business success.

Dairy Pro supports those working in the dairy sector to access key learning and development materials, providing information on training events, online courses, access to information such as journals and a place to record and store all learningactivities.Memberscanbuilduppointsandbecome‘DairyProEndorsed’,using this hallmark to publically demonstrate to those in the industry and outside of it that theyhaveafirmcommitmenttoprofessionaldevelopment.

8.HEALTH&SAFETyAnDTRAInInG

49


DairyPro;• Aimstobeaonestopshopforquality

traininginformation;• Providesanonlinerecordofprofessional

skillsandlearning;• Promotesanefficientandprofitable

industry;• Supportsandencourageslife-longlearning;• Demonstratesprofessionalismwithinthe

industry to both consumers and legislators.

With the scheme’s membership now exceeding 1,400 members and with over 110 training partners UK wide, Dairy Pro as a brand is becoming ever more recognisable as a quality standard to industry companies and farm workers.

Further information on the scheme is available at: www.dairypro.co.uk.

50


• SupporttheworkoftheHealthandSafetyExecutiveinitsengagementwiththedairysectorto implement strategies that will help companies improve health and safety culture and furtherreduceinjuryaccidentrates;

• Recognisetheimportanceofensuringacontinuedsupplyoftrainedlabourtothesectorandto support industry initiatives that address this issue.

CONSUMERS AND MARKETINg

9.

51


TheUKdairyindustry’scoreexpertiseisinmeetingtheneedsofconsumermarkets.Themajorityofoutputispre-packedgoodsintendedfor direct consumption. UK dairy products are integral to the diet of thenation,butconsumerpreferencesareconstantlyevolving.TheUKdairy industry has responded to this dynamic market environment with sustained product development, innovation and branding, backed up with successful marketing initiatives.

MARKET PENETRATION

Dairy products can be found in almost every householdintheUK.Thisgivesthedairyindustry one of the highest degrees of market penetration of any consumer product and makes dairy foods extremely important to the health and well-being of the nation.

ThemostrecentMintelmarketresearchreportsshowthat;

• 87%ofrespondentshaveusedcow’smilkinthethreemonthstoFebruary2017;

• 94%ofUKadultsbuycheese,demonstrating that it is well established as ahouseholdstaple;

• 78%ofadultseatspoonableyogurt/fromagefraiswithoverhalfofthose(51%)doing so twice a week or more.

(Sources:Mintel)

PRODUCT CONSUMPTION TRENDS

Prospects seem bright for the liquid and cheese sectorswiththelatestfiguresshowinggrowthfor both volume and value over the past year.

AccordingtoDefra’sauthoritativebuthistoricFamily Food publication, consumption of cheese, cream, yogurt and butter all increased during 2015.

Totalcheese

Hardcheese–Cheddar

Hardcheese–otherUK

Hardcheese–foreign

Cottage,softnaturalor

processed cheese

Cream

yogurtandFromageFrais

Condensedmilk

Dairy desserts – fresh

Butter

+1.5

+2.4

-3.3

+3.1

+0.6

+2.4

+1.9

-16.6

-3.2

+5.1

Table13.Average2015DairyConsumptionPerPersonPerWeek

Product% change

vs 2014

Source:‘FamilyFood’publishedbyDefra

112g

62g

7g

7g

36g

24ml

194ml

14ml

37ml

43g

Quantity

52

Pasteurised

UHT

Sterilised

-0.3%

-1.1%

-3.3%

Product % change

4,767.2

233.8

6.9

52w/e18June201752w/e19June2016

4,782.9

236.5

7.1

In terms of packaging, the proportion of liquid milk sold in plastic containers continues to increase and has reached over 88% of that sold by retailers, with approximately 12% sold in glass bottles or cartons.

CARTOn

GLASSBOTTLE

PLASTICCOnTAInER

88.2%

9.2%2.6%

Table14.SalesbyHeatTreatmentType(millionlitres)

Graph11–SalesofLiquidMilkbyContainerType2016(Retail)

ThelatestdatafromKantarWorldpanelshowsthat total household consumption of liquid milk continues to rise with data showing positive growth of 0.2% by volume and 2.5% by valueinthe52weeksendingJune2017.Semi-skimmedaccountsfor59%ofallhouseholdpurchases and, after a long term period of

decline, whole milk’s share has been higher over recent years.

By heat treatment type sales of pasteurised milkcontinuetoriseattheexpenseofUHTand sterilised.

TRENDS IN lIQUID MIlK CONSUMPTION

70

30

% m

arke

t sh

are

Graph10–SalesofMilkbyType

Source::IndustryFiguresandDairyUKEstimates

0

20

50

40

10

1995 1998 2001 2004 2004 2010 2013 2016

60

Semi-skimmedmilk Whole milk

9.COnSUMERSAnDMARKETInG

53


CHEESE

GB retail sales of cheese continue to grow year-on-year with 2016 recording an increase of2.8%involumeterms.Aslightfallintheaveragepricehasledtoamarginal(0.3%)fallin value to £2.75bn.

Allcategoriescontributedtotheoverallgrowth,Cheddar(+0.9%),HardContinental

(+4.0%),SoftContinental(+9.9%),Territorials(+5.1%)andProcessed(+3.1%).

Cheddarretainsitsshareofthesector,accounting for just over half of all purchases, but the proportion of mild varieties continues todecline,reflectingconsumer’spreferencefor more mature varieties.

OTHER fRESH DAIRY PRODUCTS

yogurtisthestarperformer,asfreshdairyproductscontinuetogrowsteadily.Akeydriver of growth in this sector has been the rise in consumption of functional foods, such as probiotic and prebiotic yogurts and yogurt drinks.LatestdatafromMintelshowthataquarter of all adults eat spoonable yogurt and aquarterdrinkyogurt/fermentedmilkdrinks.

Minteldata(May2017)showsthatyogurtappeals to the health-conscious with 58% of spoonableyogurtbuyersbeinginfluencedbyhealthconsiderations.Allnaturalingredientsand no added sugar also denote healthiness formanyyogurt/yogurtdrinksusers/buyers.

Source:‘FamilyFood’publishedbyDefra

yogurt

Fromage Frais

Cream

Dairy desserts

599

59

83

127

Table15.UKAnnualConsumptionPerPersonofFreshDairy Products

598

68

85

140

585

67

68

136

Product 2005/6 2012 2013 2014 2015

626

52

84

129

607

55

80

132

Sugarconcernshaveprompted40%ofspoonableyogurteaters/buyerstoswitchto yogurt in place of other desserts. Consumptionisalsounderpinnedbytherisingnumbers of children and older people that are traditionally strong purchasers of yogurts.

Tota

l

Cheddar

Mild

Ched

dar

Med

ium

Ched

dar

Mat

ureC

heddar

Extra

Mat

ureC

heddar

Oth

erC

heddar

Terri

toria

ls(e

x.b

lue)

SoftContin

enta

l

HardC

ontinen

tal

Proce

ssed

Chee

se

Oth

erC

heese

Branded

Ched

dar

Privat

eLa

belC

heddar

500,000

450,000

400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000

0

ton

ne

s

2015

2016

Graph12–HouseholdSalesofCheesebyTypein2015and2016

54

CONSUMER CHOICE

Income pressures affect consumer choice with the industry adapting its product proposition and pricing strategies.

Thisisreflectedbypriceremaining,bysome distance, the main consideration in purchasing patterns, with familiarity with the product also being a determining factor inselection.Thefreshnessoftheproductalso rates highly with the use or sell by dateandqualitystronginfluencesbehindconsumer choices.

Source:IGD

Table16.MacroDriversofProductChoice

DriversofConsumerChoiceRankings2016

1

2

3

4

5

6

7

8

Price

Familiarity with product

Use or sell by date

Quality

Healthyoption

Tasteorsmell

Brand

Specialoffers

Healthyeatingisdrivingdairyproductdemand. In response to public concern about obesity and calorie intake the industry has generated a comprehensive range of lower fat varietiesofdairyproducts.Thisbegandecades

ago with semi-skimmed and skimmed milks, and it is still continuing for liquid milk with the developmentof1%andbelowfatmilks.Lowfatandreducedfat“lighter”cheeseshavealsoseen positive growth.

HEAlTHY EATINg AND DAIRY PRODUCTS

INNOVATION

Theindustryinvestsinproduct innovation and ranks alongside major Europeancompetitorsincommitment to this area.

Graph13–Top10EuropeancountriesinDairyProductLaunchActivity–

%ofTotalResultset(Q32016–Q22017)

France

Germany

Spain

United K

ingdom

Russia

Italy

net

herla

nds

Belgiu

m

Austria

Poland

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

11.5%10.8%

8.9%

7.5% 7.2%6.1% 5.7%

3.8%3.1% 2.7%

Source:InnovaMarketInsights


55


bRANDS

In the UK, focuses for innovation include:

Healthconcerns:FunctionalandenrichedfoodsLifestyleissues: ConvenienceproductsEthicalchoices: OrganicproductsProvenance: LocallysuppliedproductsQuality: Premiumproducts

One of the major drivers of the value obtained frommilkisthepossessionofbrands.TheUK

Graph14–BrandsversusSupermarketLabelin2015&2016

dairy industry is working hard to increase the proportion of branded products in its portfolio.

Despite a challenging economic environment, the dairy industry has been successful in retaining the share of products sold under dairy company brands for cheese at one third of sales.

0

20

40

60

80

100

2015 2016 2015 2015

LIQUIDMILK CHEESE

Mar

ket

Sh

are

Brands SupermarketLabel

PROVENANCE

TheBritishdairyindustrycontinuestofocusondeveloping products that meet a wide range of consumer expectations, therefore facilitating consumer choice. On-pack labelling relating to the origin of food has been a key aspect of this, andasignificantnumberofdairycompaniesprovide this type of information on their products.

ThisisalsotheresultofthedevelopmentbythefoodindustryofaVoluntaryCodeof

Practice on country of origin labelling for meat and dairy products back in 2010, which is still relevanttoday.ThedevelopmentoftheCodewas facilitated by Defra.

Growing public interest in the origin of food and production methods has also led to the creation of world-leading traceability systems and direct relationships between retailers and dairy farmers.

56

AccordingtotheOrganicMilkMarketReport2017, dairy is the largest organic food and drinksector,worth£344minretailsalesandrepresenting29%ofallUKorganicfoodanddrink sales.

Salesoforganicdairygrewby2.2%in2016and this was mainly driven by organic milk (3.3%to£150m)andyogurt(0.5%to£149m),

2012

2013

2014

2015

2016

2.58

2.69

2.51

2.43

2.72

Table17.RetailSalesofAllMilkandOrganicMilk(MillionLitres)

% of total sales

133.9

141.8

135.9

133.6

149.1

OrganicAllmilk

5,179.9

5,273.0

5,419.9

5,495.7

5,476.7

Source:AHDBDairy,KantarWorldpanel

ORgANIC MIlK AND DAIRY PRODUCTS

withcheese(3.8%to£25m)andbuttersandfats(4.2%to£20m),alsocontributingtothegrowth, albeit from lower bases.

Organic retail milk sales have recovered (4.4%overthelastyear)andtherehasbeenasignificantincreaseinhouseholdpenetrationwith 1 in 4 households now purchasing organic milk.


57


EU SCHOOl MIlK SCHEME

Thedairyindustrypayscarefulattentiontotheschool and nursery milk market as it helps to cultivate consumption habits that last a lifetime. TheEUandtheUKauthoritiesprovidesupportformilkconsumptionatthisage;freemilkisavailabletounder-fivesinregisterednurseriesand subsidised milk is available for a number of pupils in primary and secondary education.

TheEUgivesamodestsubsidyforliquidmilkand yogurt consumed by school children throughitsSchoolMilkSubsidyScheme(thevolume was 25,282 tonnes in the UK during the 2015/16schoolyear).Thecurrentsubsidyratesare€0.19perlitrefromtheEUandafurther4pperlitre“top-up”fromtheGovernmentforchildreninprimaryeducation.InnorthernIreland,the4p“top-up”isalsopayableonmilksupplied to children in secondary education. In Wales, the Welsh Government funds an additional top-up to provide free milk to childreninKeyStage1education.

newEURegulationsbecameapplicablefromthe2017/18schoolyear.ChangestoUKscheme arrangements have been minimised as far as practicable pending review to ensure a smoothtransitionfollowingEU-exit.


• SupporttheworkoftheHealthandSafetyExecutiveinitsengagementwiththedairysectorto implement strategies that will help companies improve health and safety culture and furtherreduceinjuryaccidentrates;

• Recognisetheimportanceofensuringacontinuedsupplyoftrainedlabourtothesectorandto support industry initiatives that address this issue.

58

DAIRY AND NUTRITION10.

59


TheBritishdairyindustryhasalreadyinvestedsignificantlyinreformulatingexistingproductsand developing new ones in order to support consumer choice, and will continue to do so through rigorous product research and development.

MilkanddairyproductsprovideauniquearrayofnutrientstotheBritishdiet.Milkishighinqualityprotein,calcium,iodine,B12,riboflavinand is a source of phosphorus, B5 and potassium.Thedairyfoodgroupasawholecontributesasignificantamountofnutrientsto the British diet.

ThelatestnationalDietandnutritionSurvey(nDnS)showsthatmilkandmilkproductscontribute35%-40%ofcalciumintakesto adult and teen diets, respectively, and over47%tochildren’sdiets.Around15%ofadult and teen protein intakes come from milk and milk products, and contributes a significantlyhigheramount(22%-35%)tothe diets of children under 10 years. Dairy alsocontributestoabout30%ofadultandteenriboflavinintakes,andcontributes42-58% to children’s diets. Whilst milk and milk products are not classed as a source ofvitaminA(exceptforfull-fatcheese)or

Milkanddairyproductsnaturallycontainauniquearrayofprotein,vitamins and minerals, and have an important role to play in the improvement of the British diet. It is crucial that Government takes into accountthebenefitsofconsumingdairyproductswhendevelopingnutritional strategies and recommendations.

zinc,nDnSdatashowstheystillcontributeasignificantamountofthesenutrientstotheBritish diet.

Milkandmilkproductsalsocontributeasignificantamountofiodinetochildren’s(54-67%),teen(67%)andadult(54%)diets,alike.Iodine is a little known nutrient, it makes up part of the thyroid hormones which help to release energy from food and regulate growth. Iodine also contributes to brain and nerve function, and helps maintain healthy skin. However,TheWorldHealthOrganisationhasstated that sections of the British population have‘mildtomoderate’iodinedeficiency.Surveydatashows1in4teenagegirlsand11%of adult women do get enough iodine from their food. Furthermore, research from the UniversityofSurreylinkedpooriodineintakeinschoolgirlsandyoungwomentolowIQscoresinchildren.Theroleofmilkanddairyinpreventingiodinedeficiencyisstartingtoreceiveattention.Similarly,researchsuggestsVitaminB12maybeasimportantasfolicacidin the prevention of neural tube defects during pregnancy.Aglassofmilkprovides41%oftheUK’s recommendation for iodine, 74% of B12, 35%riboflavin,31%calcium,23%B5and28%phosphorous.

60

THE CHIlDHOOD ObESITY PlAN

TotacklerisingobesitytheUKGovernmentistaking steps towards addressing poor dietary choices.TheGovernment’sChildhoodObesityPlanlaunchedin2016aimstosignificantlyreduceEngland’srateofchildhoodobesitywithin the next ten years. Key measures include the introduction of a sugar levy on soft drinks and of a sugar reduction programme for a number of food categories, and the revisionofthenutrientprofilingmodelusedfor determining which foods can be advertised to children on broadcast and non-broadcast channels.

Milkanddairyproductshaveanimportantpart to play in the improvement of the nation’s diet, and the dairy industry strives to produce nutritious products, making sure that the highest quality research informs its efforts. It is crucial that Government initiatives and other campaignstakeintoaccountthebenefitsof consuming dairy products when making dietary recommendations.

THE SOfT DRINKS INDUSTRY lEVY

Toencourageproducersandimportersofsugar-sweetened soft drinks to reformulate their products to reduce the added sugar contentalevywillapplyfromApril2018tosugar-sweetenedsoftdrinks.Alowerratewill apply to sugar-sweetened drinks with a totalsugarcontentofatleast5g/100mlanda higher rate will apply to drinks with at least 8g/100ml.

In light of milk’s natural nutrient-richness, milk-based drinks with over 75% milk contentwillbeexemptfromthetax.Thisisan important step towards recognising the significantcontributionsthatthesedrinksmaketo children and teenagers’ intakes of protein, calcium, phosphorus, potassium, iodine, riboflavinandvitaminB12.Thesenumbers

acquire particular importance when considering thatsignificantproportionsofthosesameagegroups do not meet recommended intakes for a number of those essential nutrients from the food they eat. For children who do not consume plain milk, these products can be an important source of essential nutrients in their diets and it is important for national legislation to recognise this.

SUgAR REDUCTION PROgRAMME

Thefoodanddrinksindustryhasbeenchallenged to reduce overall sugar across a range of products by at least 20% by 2020.

TheBritishdairyindustryhasalreadyinvestedsignificantlyintoreformulatingexistingproducts and developing new ones in order to support consumer choice, and will continue todoso.Continuousproductresearchanddevelopment is at the core of this effort.

However,thedairyindustrywelcomesthefactthat the naturally-occurring sugar lactose has been excluded from the Government’s sugar reduction programme in recognition of the fact that – contrary to other types of sugar - it has not been shown to cause any adverse effect onhealth.Thedistinctionbetweendifferenttypes of sugars is fundamental and needs to be included in Government strategies.

THE DEPARTMENT Of HEAlTH NUTRIENT PROfIlINg MODEl

TheGovernmentisintheprocessofreviewingtheDepartmentofHealthnutrientprofilingmodel for determining which foods can be advertised to children in the UK via broadcast andnon-broadcastchannels.Themodelachieves this by using thresholds for calories, salt, sugars and fat.

10.DAIRyAnDnUTRITIOn

61


Currently,thevastmajorityofcheeseswouldnot be able to be advertised due to their saturatedfatcontent.However,cheeseisanutrient-rich food which contains a number of essential minerals and vitamins such as calcium. Calciumisestablishedasbeingessentialduringthe critical phases of growth of childhood and adolescence, as it helps achieve peak bone mass and reduce risk of osteoporosis later inlife.Researchalsopointstothebeneficialeffects of cheese on oral health, which is vital considering that so many children in the UK suffer from poor dental health.

Thecheeseindustrycannotmeetthecurrentnutrientprofilingmodelrequirementsregardless of whether it reformulates its productsornot.Ahardcheese,evenwiththelowest achievable fat content, does not qualify under the current model, owing also to the fact it is based on 100g rather than on portion size.

Given the nutrient-richness of cheese and the fact that it contributes only 2% to the calorie intake of children and adolescents aged 4-18 years, the dairy industry is advocating that the nutrientprofilingmodelexemptthecheesecategory.Thisisalreadythecaseincountriessuch as Ireland.

SACN AND SATURATED fAT

TheGovernmentwillconsiderwhethertoimplement a saturated fat reduction programme infoodssoldintheUKoncetheScientificAdvisoryCommitteeonnutrition(SACn)-theofficialscientificadvisorybodytotheUKGovernment on nutritional and dietary issues - publishes its updated recommendations on saturated fat intake in late 2017.

TheDairyCouncilhassubmittedevidencetoSACn’sreviewwhichhighlightsthattheeffectof saturated fat consumption cannot be studied in isolation, but is instead highly dependent on thetypeoffooditiscontainedin.Althoughdairyproducts contain saturated fat, the weight of evidence suggests that certain dairy products may be protective against cardiometabolic disease and that other components in dairy may actually counteract the presence of saturated fat. For example, calcium and bioactive peptides mayhavebeneficialeffectsonbloodpressure.Itis therefore important to consider the complex interplay of nutrients within a food and the effects of whole foods rather than individual nutrients.

62


• EnsuretheeffectiveimplementationoftheSoftDrinksIndustrylevyonceinforce,andensure that naturally nutrient rich products like milk and yogurt based drinks remain exempt fromthetax;

• Engagewiththedairyindustrytounderstanditstechnicalcapabilitiesintheareaofreformulationandwhatcanandcannotbeachieved;

• Takeintoaccountthewiderangeofessentialnutrientsthatdairyproductssuchasmilk,canprovidetochildrenintheUK;

• EnsurethattheDepartmentofHealthnutrientProfilingModelexcludescheeseinviewofitsnutrient-richnessandthehealthbenefitsitprovides;

• Ensurethattherichinterplayofnutrientsinwholefoodsandtheirpositiveeffectonhealthoutcomes are taken into account in any national dietary advice to consumers.

UK DAIRY AND THE ENVIRONMENT

11.

63


TheUKdairyindustryrecognisesitsresponsibilitytominimiseitsenvironmental footprint wherever possible so as to ensure the continued sustainability of the sector and to ensure that dairy products can remain apartofthenation’sdietforyearstocome.TheUKdairyindustryhasledthewiderAgri-foodindustryintermsofenvironmentalcommitmentandaction and will continue to work to ensure that it retains its leadership position.Theindustryundertakesamyriadofenvironmentalandsustainabilityinitiatives,foremostofwhichisTheDairyRoadmapwhichprovided a template mirrored by several other countries around the world.

THE DAIRY ROADMAP

TheDairyRoadmapisacross-industryinitiativebetweenDairyUK,AHDBDairy,thenFUandDefrabringingtogetherthedairysupplychain.ThroughtheDairyRoadmap,the UK dairy industry has led the world in committing itself to a plan which aims to reduce the industry’s environmental footprint.

TheDairyRoadmapbeganin2008,settingout a series of targets to tackle the major environmental impacts of producing liquid milk.In2011theRoadmapwasexpandedtoinclude all dairy products.

Overthepastdecade,theRoadmaphasreported success against its targets for 2010 and 2015, whilst setting ambitious targets for 2020 and 2025, which will ensure that the initiative remains at the fore front of the sustainability agenda.

AstheDairyRoadmapapproachesits10-yearanniversary in 2018, we are committed to continuingitsachievements.The2018reportwill aim to celebrate the successes of the past tenyears,whilstreaffirmingourcommitmentto and reporting progress against the targets for2020and2025.Moreinformationcanbefound at www.dairyroadmap.com.

64

90%offarmersareactivelynutrientplanning

65% of dairy managed farmland into EnvironmentalStewardshipSchemes

70%uptakeofwaterefficiencymeasures

10-15% of dairy farmers investigating or implementing renewable energy

50% of dairy farmers implementing new developmentsand/ortechnologiestoreduce

emissions from agriculture

Declining trend in serious pollution incidents on farm

Dairy farmers encouraged to calculate carbon footprints and implement carbon reduction plans

In 2015, 77% of dairy holdings were implementing nutrient management plans

In2013,69%or841,810hectareswerewithinanESS,meetingthe target 2 years early

In2012,78%ofrespondentstotheDairyCoresourcessurveywereundertakingwaterefficiencymeasures

In2013,29%ofrespondentstotheDairyCoresourcessurveyhad implemented some form of renewable energy

In 2015, 78% of dairy farmers were taking action to reduce GHGemissionsontheirfarm,thehighestpercentageoutofallfarming sectors

DatafromtheEnvironmentAgencyshowaconsistentlongterm trend towards reducing pollution incidences associated withdairyfarms.Between2013and2014,incidentscausedbydairy farms decreased by 18%

In2012,38%ofrespondentstoaDairyCosurveyhadundergonea carbon footprint audit on their farms

Table18.ProducersProgress

ProgressTarget

PERfORMANCE AgAINST 2015 TARgETS

PRODUCERS

The2015targetscommitteddairyfarmerstomake improvements in a wide range of areas includingrenewableenergy,waterefficiency,

carbon footprint and environmental stewardship. Thetablebelowdetailstheprogressreportedinthe2015DairyRoadmapreport.

11.UKDAIRyAnDTHEEnVIROnMEnT

65


Everylargeprocessingsitewillhaveinplaceanenvironmentalmanagementsystem(EMS)

coveringcarbon,energy,water,effluent,waste and packaging, with all permitted sites

progressingtoanexternallyverifiedEMSby2015.

SmallsitestobeinvestigatingEMS

Allmajorprocessingcompaniestobeimplementing a carbon management

programme

A20%relativereductionofwaterbroughtontosite

Toachievea20%relativereductioninCODloadin discharge

Tosendzeroex-factorywastetolandfillwhereenvironmentally advantageous for all large

processing sites

ThreeADplantsatdairyroadmapsites

30%recycledmaterialinHDPEmilkbottles

RemoveallHCFCsatalllargeprocessingsites

80%ofpaper-basedcartonstobeFSC-labelled

ABiodiversitystrategyforprocessorstobewrittenand to be in the process of implementation

AllmajorprocessingcompaniestobepartoftheFreightTransportAssociation’sLogisticsCarbon

ReductionSchemeortocommittoequivalentfuelefficiencytargets

AllmajorDairyCompaniestohavephasedoutEuro4engines

Asof2015,91%oflargeDairyRoadmapsiteshaveanEMSinplaceand90%ofpermittedsiteshaveEMSexternallyverified

DuetotheRoadmap’slowthresholdforasmallprocessingsite(below50tonnesofmilkaday),therearecurrentlyonlysixsmallsitesreportingintotheinitiative;ofthese,twohadsystems in place by 2015, with a third investigating.

All5majordairyprocessingcompaniescurrentlyreportingintotheDairyRoadmaphaveprogrammestomonitorandreducetheir carbon emissions.

In 2015, a 15% reduction against 2008 levels was achieved

Duetoa23%increaseinthroughputcoupledwithsmallerproduct runs, 2015 data reported a 7% increase. Future targets looktoreducethisfigure

4%ofex-factorywastewassenttolandfillin2014comparedto32%in2008,an87.5%reduction

ThreeADplantsarecurrentlyoperationalatDairyRoadmapsites

Theindustryhasachieved31%recycledmaterialinHDPEmilkbottles

Allsites,largeandsmallhavephasedoutHCFCsorplannedtodo so by the end of 2015

Duringthefirstsixmonthsof2015,74%wasachieved.Itisexpected that this value has increased

Dairy UK has launched a biodiversity commitment for dairy processors.

FourofthefivemajorcompanieshavejoinedtheFTAscheme.Threeofthesehavesetadditionalemissionsreductiontargets

Asof2015,twolargeprocessingplantshavephasedtheseoutwith the remaining three aiming to do so by the end of the year

Table19.ProcessorsProgress

ProgressTarget

PROCESSORS

Thewiderangingtargetsadoptedbythedairy processing sector represent a key step in formalising the sector’s commitment to environmental sustainability. Individual processing companies have committed to the initiative, each undertaking actions which will

helpthesectorachieveitstargets.Thetablebelow details the progress reported in the 2015 DairyRoadmapreportagainstawiderangeoftargets including environmental management systems,waterefficiency,wastereduction,and recycling.

66

RETAIlERS

Retailersareanimportantandinfluentialpart of the supply chain, forming the link to consumers, but also working increasingly closer with their supplying dairy farmers. Retailers,Asda,theCo-operative,Marks&Spencer,MorrisonsandTescohaveall

provided statements of commitment to theDairyRoadmapanditsaims.newopportunities for engagement with retailers are being explored which will contribute towards to progress being made by producers and processors to meet targets.

fUTURE ROADMAP TARgETS

UndertheDairyRoadmapdairyproducersandprocessors have set wide reaching targets for both2020and2025.Thereisnoendpoint,no

finishlineonenvironmentalsustainabilityandthe sector will continue to challenge itself to keep progressing and innovating in this area.

Toachievea15%improvementinenergyefficiency

20% relative reduction in water brought onto site

A20%relativereductioninChemicalOxygenDemand(COD)inpre-primarytreatmenteffluent

Tosendzeroex-factorywastetolandfill

50%recycledmaterialinHDPEmilkbottles,oritscarbon equivalent reduction

Alltertiarypackagingtobereusableorrecyclable100%ofpaperbasedcartonstobeFSClabelled

100%ofpaperbasedcartonstobeFSClabelled

30%relativereductionincarbonrelatedtoenergyuseatprocessing sites 30%relativereductioninnetwaterbroughtontosite

30%reductioninfoodwastefromsite(basedonsolids)inlinewiththeEUFusionsfoodwastedefinition

Dairy sites to exhibit an increase in biodiversity

Dairy industry to develop and implement an industry standard for sustainability training

Improve design for dairy packaging to maximise recycled content as appropriate, improve recyclability and deliver product protection to reduce food waste, while minimising carbon impact.

Table21.FutureTargets-Processors

20252020

Table20.FutureTargets-Producers

20252020

30%reductioninGHG(includingcarbondioxide,methaneandnitrousoxide)emissionsfromdairy

farmsbetween1990and2020

70% of non-natural waste is recycled or recovered as standard practice

90%uptakeofwateruseefficiencymeasures

40% of energy used on dairy farms is from renewable resources

90%ofdairyfarmersimplementingtechnologies/practicestoreduce emissions from agriculture

85% of farmers using expert advice to optimise feed plans, which is directly linked to reduced emissions

Dairy farmers to enhance and promote action being taken to improve biodiversity

95%uptakeofwateruseefficiencymethods


67


MEASURINg THE INDUSTRY’S CARbON fOOTPRINT

TheUKdairyindustryhascommittedtomeasuring, monitoring and reducing carbon within the entire dairy supply chain. Dairy UK workedincollaborationwithDairyCoandtheCarbonTrusttoproduceacommonapproachto produce a carbon footprint of dairy in the UK.Throughthiscollaboration,theindustrydevelopeddairysectorspecificguidanceontheapplicationofPAS(PublicallyAvailableSpecification)2050thatsetsoutbroadrulesfor carbon footprinting.

ThismethodologywasusedbyDairyCoaspart of a three-year carbon footprinting studybetween2011and2013whichaimedtoprovidearobustandexternallyverifiedcarbonfootprintofBritishmilk.Thefinalreport,publishedinMay2014showedthatoverthethree year period the average on-farm carbon footprintforalitreofmilkfellyearonyear.Theresultsof1,293,1,227and1,177kgCO2e/litreof

milkforyear1to3respectivelyequatedtoa9.0%reductionovertheperiodoftheproject.

Sincethedevelopmentofthisguidanceprocessors and rretailers have conducted their own carbon footprinting studies of dairy farms. CarbonfootprintingconductedbyMorrisonsin2011at105DairyCrestfarmsacrosstheUKandcertifiedbytheCarbonTrustputthegreenhouse gas emissions associated with UKmilkproductionat1,220gCO2e/litreofmilk. Given the process of farm restructuring andimprovementsinproductiveefficiencyitcan be expected that there would have been afurtheradvanceonthisfiguretodate.Thisvalue sits below the average emissions in WesternEuropeat1,500gCO2e/kgofmilkandtheWorldat2,400kgCO2e/kgofmilkasreportedbytheFAOin2010.ItalsoplacesUK dairy amongst the leading nations when comparedtotheoverallrange,1,300–7,500kgCO2e/kgofmilk.

68

Thedairyindustryiscarryingoutresearchandconsidering cost effective ways to reduce the greenhousegas(GHG)emissionsfromdairyfarms.ThekeyGHGemissionsfromdairyfarmingaremethaneandammonia.Methaneis a by-product of the enteric fermentation of grass, forage and other feed within the cow’s rumen, the largest of its four stomachs. Ammoniaisproducedbythebacterialdegradation of the unabsorbed nitrogen discarded in ruminant manure.

UndertherevisedtargetsoftheEU’snationalEmissionCeilingDirective,theUKhaspledged to reduce ammonia emissions by 8%and16%by2020and2030respectively(against2005levels).ResearchintowaystoreduceGHGemissionsfromdairyfarmsis considering a number of opportunities thatmayhelptomeettheseandotherGHGemissiontargets.Theseinclude;

• low emission animal housing;• Improved manure and slurry storage:The

use of covers, slurry bags and sheeting couldhelptoreduceammoniaemissions;

DAIRY fARMINg AND gREENHOUSE gAS (gHg) EMISSIONS

• Improved slurry application:Targetedapplicationthroughimprovedtechnology;

• Anaerobic Digesters (AD): Thesecanbeusedto produce biogas from stored manure and slurry.ADalsoofferasourceoflowcarbonelectricitythancanoffsettheoverallGHGbalance;

• Nutrient planning:Toensurethattheuseof nitrogen on farms is optimised, reducing the overall emissions of nitrous oxide and methane;

• biofuels in agricultural vehicles;• Improving the efficiency of rumen microbial

action:Thiscouldbeachievedthroughchanges in diet or the use of feed additives in ordertoreducemethaneproduction;

• Avoidance of low-quality feed that encourages the production of methane;

• Cow longevity: Increased cow longevity may help to improve the ratio of methane emission perunitofproduction;

• Increased yield per cow: Whilst increased yields would help reduce emission footprint, it must be recognised that on many units yield may already be at optimum levels in terms of economic viability and animal welfare.


69


ClIMATE CHANgE AgREEMENTS

DairyEnergySavingsLtd,asubsidiaryofDairyUK,administerstheindustry’sClimateChangeAgreements.SinceApril2001,theClimateChangeLevy(CCL)hasbeenaddedtothecostof non-domestic energy as an incentive to improveenergyefficiencyandreducecarbonemissions. In recognition of the challenge that this added cost poses to the competitiveness ofenergyintensiveindustries,ClimateChangeAgreementswereintroducedbytheGovernment. In return for signing up to these voluntary agreements and committing to meet challenging energy and carbon reduction targets, eligible companies are entitled to a discountontheCCL,encouragingcompaniestoimproveenergyefficiency.

Atpresentthediscountofferedforfacilitieswhosuccessfullymeettheirtargetsis90%forelectricityand65%forotherfuels.ThesearesettoriseinApril2019to93%and78%respectivelywiththeendoftheCarbonReductionCommitment(CRC)Scheme.

DuringthefirstphaseoftheCCA(1998-2010)thedairysectorexceededthe22.5%improvementinenergyefficiency,boastinganimpressive27.9%improvement;inabsolutetermsequatingtoareductioninCO2of257,337tonnes.

Atpresentover90processingsitesfromaround 60 companies are participating in the secondphaseoftheCCArunningfrom2013to2023.Aheadofthecurrentphase,DairyEnergySavingsLtdconductedacomprehensiveenergy best practice survey to determine the energy reduction potential in the sector. Following this, a target improvement in energyefficiencyof13.6%(2008-2020)wasagreed with the Government. Data from the firstCCAtargetperiod(2013-2104)showsthatthe dairy sector has already achieved a 15.8% improvement against the 2008 level, and it isanticipatedthatthisfigurewillrisefurtherwhen the data for the second target period (2015-2016)ispublished.

900

850

800

750

650

950

700

600

‘00

0 t

on

ne

s

Graph16–TotalCarbon(CCAPhase1)

Baseline(1998)

2002 2004 2006 2008 2010

Source:CCA/EnvironmentAgency

••

•

••

•

550

500

450

400

350

600

300

kWh

/to

nn

e

Graph15–EnergyEfficiency(CCAPhase1)

Baseline(1998)

2002 2004 2006 2008 2010

Source:CCA/EnvironmentAgency

•

• •• • •

70

TheIndustrialDecarbonisationandEnergyEfficiencyRoadmapsareaseriesof documents developed in collaboration between Government and industry which aim to assist industry in improving their energyefficiencywithoutcompromisingtheircompetitiveness. Dairy UK recently helped develop and pledged commitment to the UK FoodandDrinkSectorDecarbonisationandEnergyEfficiencyActionPlan.

TheActionPlanbuildsupontheevidencebaselaidoutinPhase1oftheIndustrialRoadmapsproject. It provides a voluntary framework of actions to deliver decarbonisation and energy efficiencyimprovementswithinthefoodanddrinksectorbetweennowand2050.Thekeyactionslaidoutintheactionplanareasfollows;1. IncreasecollaborativeR&Dundertakenby

thefoodanddrinksector;2. Increase the adoption of state-of-the-art

(SAT)technologies;3. Improvethefoodanddrinksector’s

awarenessofexistingfundingandfinanceoptionsforbothmatureenergyefficiencyanddecarbonisationtechnologies;

4. IncreasethesupplyofScience,Technology,EngineeringandMaths(STEM)graduateswith the skill and knowledge needed to deliver a low-carbon competitive future for thefoodanddrinksector;

5. Identify additional opportunities for using bioenergyinthefoodanddrinksector;

6. Identify and implement industrial heat recoveryprojectsthatrealisebenefitsforthe sector.

INDUSTRIAl ROADMAP fOR DECARbONISATION AND ENERgY EffICIENCY


71


Dairy UK undertakes annual environmental benchmarking in order to help members monitor and improve their performance against a series of environmental performance indicators on energy use, emissions, water, waste and recycling. Launchedin2008,thetoolallowsmemberswith complete anonymity to compare their performance against the average of the dairy sector. Dairy UK also uses the data collected through the environmental benchmarking tool for wider sustainability reporting and to track progressagainstthetargetsoftheDairyRoadmap

Benchmarking within and across sectors is seen as an increasingly important means of improving performance for individual sites. It helps give operators the power to identify areas for improvement and to apply best practices and processes.

ENVIRONMENTAl bENCHMARKINg AND REPORTINg

ThemostrecentDairyEnvironmentalBenchmarkingReportin2016showedthe great progress being made by dairy processorsinthisareasince2008.Highlightsinclude;

• 16%increaseinenergyefficiency;• 15%improvementinwaterefficiency;• 18%decreaseintheamountofwastesent

tolandfill;• 21%increaseintheamountofwaste

recovered or recycled.

Dairy UK has recently expanded its benchmarking requirements in the areas offoodwasteandpackagingwaste.Thesechanges help the dairy industry to report againstitstargetsintheDairyRoadmapandother environmental commitments.

50

40

30

20

10

60

0

Was

tev

olu

me

(%

)

Graph 18 – Destination of Waste

2011 2013 2015

Source:DairyEnvironmentalBenchmarkingReport2016

•

• ••

•

90

80

70

100

2009

Recovered

Landfill

••

•• • • •

• • • •

1.25

1.2

1.15

1.1

1.05

1.3

1.0

Litr

e/t

on

ne

Graph17–WaterEfficiency

2011 2013 2015

Source:DairyEnvironmentalBenchmarkingReport2016

•

1.35

2009

••

•

•

•

• •

72

DairyUKisasignatoryofTheCourtauldCommitment2025,aWRAP(TheWasteandResourcesActionProgramme)ledcampaignaimed at tackling waste in the food and drinksector.Launchedin2015,underthisvoluntary agreement Dairy UK has pledged its commitment to make food and drink production more sustainable and reduce the resources required to produce food and drink by 20%. In order to achieve this it has been calculated that by 2025 the entire food and drinksectormustmeetthefollowingtargets;

bREf

BRefstandsforBestAvailableTechniquesReferenceDocument.TheFoodDrinkandMilk(FDM)BRefsetsoutthetechniques,technologies, performance levels and emissions levelsthatallpermittedsitesintheEUmustmeet in order to be allowed to operate.

AreviewoftheFDMBRefwasconductedbetween2014and2016,withthefirstdraftof the revised guidelines published in early 2017.SincethispublicationDairyUKhasworkedwiththeEnvironmentAgencyandtheEuropeanDairyAssociationtoprovide

comments and suggest amendments. Under the current timeline for review, it is anticipated thatthefinaliseddraftwillbedeliveredinearly2018.

TherevisedBRefisofgreatsignificanceandwill likely form the basis of future decision and policy making on crucial topics like water and energy use in the sector. Brexit is not expected to impact the outcomes of the review, and sites in the UK processing over 200 tonnes of milk a day will need to be compliant with the new standards by 2020.

THE COURTAUlD COMMITMENT 2025

• 20%reductioninfood&drinkwastearisingintheUK;

• 20%reductioninGHGintensityoffood&drinkconsumedintheUK;

• Areductioninimpactassociatedwithwateruse in the supply chain.

In order to meet these commitments and the respective targets established in the Dairy Roadmap,DairyUKhassetupaDairyWorkingGroupinassociationwithWRAPtotargetwaste hotspots across the supply chain.


73


Dairy UK has developed a biodiversity commitment for dairy processors. Whilst dairy farms present the greatest opportunities for improving biodiversity within the dairy supply chain, dairy processors recognise that they too can play a small but crucial role by promoting biodiversityatprocessingsites.Thecommitment recognises the heterogeneity in dairysitelocationsandprovidestheflexibilitytoencouragebiodiversitywherefeasible.Thestrategycommitsdairyprocessingsitesto;

* Developing and implementing appropriate measures on site that make

DAIRY UK bIODIVERSITY COMMITMENT

acontributiontoenhancingbiodiversity;Thesemayincludebutnotbelimitedto:complementary planting of native plant species, erecting bird nesting facilities, allowing natural regeneration, removing invasive species and avoiding light pollution

* Alternatively,siteswillendeavourtoengage in biodiversity projects in their local communities.Thesemayincludebutnotbelimited to: working with local conservation groups,nGOs,charitiesandschools;

* Moderateimpactonbiodiversitywherepossible in the ways that sites use energy and water, dispose of waste and run their transport operations.

DAIRY DEClARATION Of ROTTERDAM

LaunchedattheIDFWorldDairySummitinRotterdaminOctober2016,theDairyDeclarationofRotterdamactsasacommitment from the dairy community to the continued sustainable development ofthedairysector.TheIDFandFoodandAgricultureOrganisation(FAO)havealready been joined by countries from around the world in signing the declaration, and it is the intention of Dairy UK and the DairyRoadmaptosignthedeclarationonbehalf of the United Kingdom.

TheDeclarationrecognisestheUn2030Agendaforsustainabledevelopmentasthe overarching framework that guides actions towards sustainable development, and the vital role that dairy plays in sustainable development through food security, poverty reduction, environmental management, and as an important livelihood around the world.

UK DAIRY INDUSTRY AND INTERNATIONAl ENVIRONMENTAl COMMITMENTS

In signing the declaration, the signatories agree to;• Takeanintegratedapproachtopromotethe

sustainability of dairy systems, jointly taking into consideration social, economic, health and environmentaldimensions;

• Giveparticularattentiontotheneedsoffamilyfarmers small holders and pastoralists

• Build,implementanddisseminatetoolsandguidelinestofacilitatetheidentificationandadoption of sustainable practices in the dairy sector;

• Buildcapacityinsupportofsustainablepracticeandprovideenablingconditions;

• Measureandreportonsustainabilityoutcomes;

• Strengthenmulti-stakeholderdialogueforconsensus building, reviewing progress and continuous improvement.

TheDairyDeclarationofRotterdamcanbeviewedonline at www.dairydeclaration.org.

74

DairyUKisanAffiliateMemberoftheDairySustainabilityFramework(DSF),acollaborativeglobalindustryledconsortium.TheDSFprovidesa shared framework that allows the international dairy sector to work collaboratively in improving global sustainability within the sector.

Theframeworkincludeselevenkeysustainabilitycategories,identifiedasrelevant

DAIRY SUSTAINAbIlITY fRAMEWORK

tothedairysectorglobally.Eachofthesehas an associated high-level objective which membersoftheDSFhavecommittedtoworking towards.

Dairy UK is currently considering becoming an AggregateMemberoftheDSF,andjoininginthe reporting against all eleven criteria set out bytheDSFusingtheagreedindicators.

Greenhouse Gas EmissionsSoilnutrientsWasteWaterSoil

Biodiversity MarketDevelopmentRuralEconomiesWorkingConditionsProductSafety&QualityAnimalCare

DAIRY SUSTAINAbIlITY fRAMEWORK glObAl CRITERIA


75


• RecognisetheambitiouscommitmentsthedairyindustryhasmadetoimproveitsenvironmentalfootprintthroughTheDairyRoadmap;

• RecognisetheUKdairyindustry’sroleinhelpingtodeliveronthecommitmentsofthejointFoodandAgricultureOrganisation(FAO)andtheInternationalDairyFederation’s(IDF)DairyDeclarationofRotterdam.TheDairyDeclarationiskeyinhelpingtothedairysectordeliveragainstanumberoftheUnitednationsSustainableDevelopmentGoals;

• EngagewiththedairyindustryinfurtherensuringthecontinuedenvironmentalsustainabilityoftheentiredairysupplychainwithintheUnitedKingdom;

• Engagewiththedairyindustrytounderstandthefeasibilitiesofagriculturetominimisegreenhousegasemissions,andprovidesupportinachievingemissionsreductiontargets;

• Recognisethestrongperformanceofthedairyprocessingsectorsclimatechangeagreementsandtoprovidefurthersupporttohelpimplementlow-carbonorenergyefficienttechnologiesandinnovations;

• UpholdthecommitmentsoftheIndustrialDecarbonisationandEnergyEfficiencyRoadmap2050:Food&DrinkActionPlan,andtofurtherengagewiththedairyindustryinthedevelopmentofdecarbonisationandenergyefficiencypolicy;

• EnsuretheUnitedKingdomscontinuedparticipationwithintheEUEmissionsTradingSchemeuntilatearliestthecompletionofPhase3,andtocontinuetoengagewiththedairyindustry in the development of post-Brexit Industry emissions policy.


76

WORlD DAIRY TRADE AND fUTURE PROSPECTS

12.

77


Growing demand is putting world milk production on an upward trend. Internationaltradeindairyproductsisalsogrowing.TradeinallmajordairyproductsisexpectedtogrowwiththeexceptionofWMP.TheEU’sexposure to the world market through exports means that the trend inworldmarketpricesdrivesEUandUKprices.TheGlobalDairyTradeoperated on behalf of Fonterra sets benchmark prices for the world market.ThepatternofUKtradeindairyproductsisdeterminedbyarange of structural factors but within these constraints the UK’s export performance is considerable. Future prospects for global demand are strongly positive with prices expected to rise.

WORlD MIlK PRODUCTION

Over the past nine years the average annual rate of growth has been 2.2%.

Around38%ofworldmilkoutputcontinuestobefromthe‘informalsector’(IFCnDairyReport2016)wheremilkproducedbyverysmall farmers is either consumed on the farm ormarketedlocally.Theshiftawayfromtheinformal sector towards milk being delivered to dairies for processing is one of the main underlying trends in the global dairy industry.

Production growth during 2016 is estimated at 0.9%,alowerratethaninpreviousyears,withexpansioninAsia,northandCentralAmerica,EuropeandAfricaoffsettosomeextentbydeclinesinAustralia(hitbyharshpricecutsandharshseasonalconditions)andnewZealand.MostoftheglobalincreaseoriginatesinAsia,principallyIndia,whereproductionis forecast to expand by 4.2%, or 6.1 million tonnes, to 152 million tonnes, fuelled by rising incomes and increased urbanisation.

700

680

660

640

620

600

580

560

540

520

500

Mill

ion

ton

ne

s

Graph19–WorldMilkProduction(milliontonnes)

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

year

+2.2%+1.9% +1.4%

+2.0%+3.0%

+2.3% +0.6%+2.9%

+2.0%+0.9%

Source:FAO

78

Overall global production during 2017 is forecast to rise by 1.7%, slightly lower than the average over the past decade, with output

MIlK PRODUCTION bY COUNTRY

Australia

EU-28

China

newZealand

UnitedStates

Total

146,500

37,250

21,893

93,485

308,8

28

150,200

37,550

21,587

94,619

313,7

56

151,000

36,020

21,224

96,343

313,93

7

-4.8

+0.5

-4.2

-1.7

+1.8

+0.1

9,100

151,300

35,500

21,900

98,112

315,912

Table22.SummaryofMajorMilkProductionForecastsfor2016and2017(millionmetrictons)

-2.7

+0.2

-1.4

+3.2

+1.8

+0.6

2014

9,700

2015

9,800

2016

9,350

% change

15/16

2017

forecast

% change

16/17

expectedtoexpandinnorthandSouthAmerica,showlittlechangeinEuropeandAfricaanddeclineagaininAustralia.

Source:USDA

ExPORTS

Milkanddairyproductsarelargelyconsumedintheregionwheretheyareproduced.Thetradable surplus for any country is generally a fraction of total production, with the exceptionsofAustraliaandnewZealand.Consequently,theworldmarketremainsrelatively small compared to total global production, but the strong level of demand fromChinacontributedtotheproportionofworldoutputtradedrisingto9%.

newZealand

EU

USA

Belarus

Australia

Argentina

World

19.4

18.5

10.0

3.9

3.3

1.8

71.1

90

11

10

55

34

18

9

Table23.PatternofWorldTrade2016(volumeofproductexportedand%ofmilkproduction)

VolumeofProductExported(MillionTonsMilkEquivalent)

% of Domestic Production

Source:FAOFoodOutlook

STRUCTURE Of THE WORlD MARKET

12.WORLDDAIRyTRADEAnDFUTUREPROSPECTS

79


IMPORTS

AccordingtotheFAO,globaltradeofdairyproducts is expected to record a second, successive year of modest growth in 2017, withrenewedgrowthbyChina,followingasignificantdropin2015,forecasttobeoneofthemaindriversbehindtherise.TheEU,theUnitedStates,ArgentinaandCanadaarethemaincountries also expected to see their exports rise.

WiththeexceptionofWMP,worldtradeinallmajor dairy commodity products is forecast to rise.SMPisexpectedtorecoverfromadropof -2.4% in 2016, returning to the pattern of growth that had been seen for the majority of the previous decade. Butter is forecast to seeasecondyearofgrowth,reflectingstrongdemand(especiallyfromChinaandAustralia)andlimitedsupplies.Cheese,howeverisexpected to move higher to a record level,

China

RussianFederation

Mexico

SaudiArabia

Algeria

Indonesia

12.0

4.2

3.7

3.2

2.6

2.5

17

6

5

4

4

4

Table24.MajorDairyCommodityImportingCountriesin2016

VolumeofProductImported(MillionTonsMilkEquivalent)

% of World Imports

Source:FAOFoodOutlook

with growth in imports expected from all majormarkets,inparticularChina,theRussianFederation,Australia,JapanandtheUnitedStates.WorldtradeinWMPisforecasttoseeathird year of decline, with a slight fall of -0.5%.

TRADE POlICIES AND DAIRY PRICES

Theunderlyingriseinworlddairypricessince2007hasmeantthatEUandworldmarketpriceshavenowlargelyconverged.Thishasmeantthatthetradepolicies(tariffs,exportsubsidiesetc)pursuedby the major producing regions have become less important in determining world prices. Whilst the USAandEUstillmaintainrelativelyhighimporttariffs, the relatively large exportable surplus generated by these regions, and the declining use of export subsidies, means that these regions are now directly subject to world market price trends.

AfurtherWTOagreementonmulti-lateraltradeliberalisation for agriculture would have further reduced the importance of trade policies on the world dairy market, but the talks have stalled and it is uncertain when they will resume, if ever. HoweverinDecember2015attheWorldTradeOrganization’s(WTO)10thMinisterialConferenceinnairobi,membersfinallyagreedthatexportsubsidies for agriculture would be abolished.

ThislocksintheexposureoftheEUtoworldmarketpricetrendsbecausetheEU’sexportable surplus will have to continue to be priced competitively with the world market, whichwillinfluencethepriceprevailingthroughoutthebloc.Continuedexposuretothe world market will bring with it further price volatility compared to the stability previously createdbytheCAP.

However,atthelowerboundsofpricevolatilitythissituationisqualifiedbythewillingnessoftheEUtosustainEUpricesthrough the intervention system. By placing afloorpriceonEUexportstheinterventionsystem also acts to limit the fall of world prices. ThecostofplayingthisrolefortheEUhasbeentheaccumulationof350,000tonnesofSMPinpublicstocksduringtherecentdownturn.SofartheCommissionhasenjoyedlittlesuccessinreleasing the stock back on to the market.

80

Butter

SMP

6,000

5,000

4,000

3,000

1,000

7,000

2,000

0

$/t

on

ne

Graph20–WorldDairyCommodityPrices

July‘06

Source:AHDBDairy

Jan‘07

July‘07

Jan‘08

July‘08

Jan‘09

July‘09

Jan‘10

July‘10

Jan‘11

July‘11

Jan‘12

July‘12

Jan‘13

July‘13

Jan‘14

July‘14

Jan‘15

July‘15

Jan‘16

July‘16

Jan‘17

Jul‘17

WMP

Cheddarcheese

EU25

Virtualworldmilkprice

30

25

20

15

5

40

10

Eu

rop

er

100

kg

Graph21–EUandWorldMarketPrices

Source:ZMB

1991

35

01993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017a


81


WORlD MARKET PRICES

Theelectronicauctionsystemfordairyproducts,operatedbyGlobalDairyTradeonbehalf of Fonterra, is seen to set the benchmark priceforworlddairyproducts.TheauctionstartedwithWholeMilkPowderinJuly2006and since then the range of products offered has been expanded with the addition of AnhydrousMilkFat(AMF),SkimMilkPowder

(SMP),ButterMilkPowder(BMP),MilkProteinConcentrate(MPC),RennetCasein,CheddarCheese,lactoseandbutter.ItwasannouncedinApril2017thattheonlinedairytradingplatform,GDTEvents,haspassedthemilestoneofUS$20billion cumulative value of products sold and, now,inits9thyear,hastradedmorethan5.8million metric tonnes of dairy ingredients.

fUTURES CONTRACTS fOR DAIRY

Price volatility means that there is growing interest in the development of futures markets for dairy products to help the industry manage price risk.

Futures contracts for dairy products are alreadywellestablishedintheUSAontheChicagoMercantileExchange.TwoEuropeanexchanges have launched futures contracts for dairyproducts,butatpresentonlytheEurexexchange is showing any degree of liquidity. InadditionsignificantactivityintheEUforOverTheCounter(OFC)productsfordairy

priceriskmanagementprovidedbyfinancialinstitutionshasbeenreported.TheFonterraauctionhasalsoallowedthenewZealandstock exchange to develop futures contracts for dairy products.

UK dairy companies are developing farmer contracts that provide the option of greater price certainty by linking into futures markets. Howeveritisrecognisedthatfuturesarenotapanacea and represent one strategy amongst many for addressing price risk.

$U

S/M

t,F

AS

Graph22–FonterraAuctionSystemResults

Source:GlobalDairyTrade

12,000

10,000

8,000

6,000

2,000

14,000

4,000

0

WMP BMP Cheddar

AMF MPC Butter

SMP

REn

DTDPriceindexG

TD

pri

cein

de

x

1,400

1,000

800

600

200

1,800

400

0

1,200

1,600

02/01/

13

02/04/

13

02/07/

13

01/10

/13

07/01/

14

01/04/

14

01/07/

14

01/10

/14

06/01/

15

01/04/

15

01/07/

15

06/10

/15

05/01/

16

05/04/

16

05/07/

16

04/10

/16

03/01/

17

04/04/

17

04/07/

17

82

UK DAIRY TRADE

UK dairy companies export to the world market, and in particular the industry in northernIrelandisheavilyengagedindoingso.

TheactualpatternofUKtradeindairyproductsisshapedbythefollowing;

• UKmilkproductionisinsufficienttomeetdomesticconsumption;

• Freshpasteurisedliquidmilkcannotnormallybeexportedcompetitively;

• SalesofhighvaluedairyproductsinGreatBritain are focused on the market for direct consumptionbydomesticshoppers;

• Aportionofthebutterfatgeneratedfrom the manufacture of low fat milks is exportedfromtheUKasbulkcream;

• RawmilkisexportedfromnorthernIrelandtotheRepublicofIreland,anda range of milk powders is exported to destinationswithintheEUandtothirdcountries.

ThesestructuralfactorsmeanthattheUK’s exports inevitably tend to be of lower unit value than imports into the UK. nevertheless,giventhatliquidmilkisnotreadily tradeable, the export performance of the UK dairy industry is considerable. Around20%ofUKrawmilkproductionisexported in the form of processed dairy products.

Both in respect of imports and exports the EUistheUK’smajortradingpartner.

11

0

1

1

1

1,364

2

6,025

15

4,584

116,395

27,770

36,515

23,441

44,924

145,693

64,823

471,984

54,532

96,449

Table25.UKDairyImportsin2016–tonnes

EU non-EU TotalProduct

116,385

27,770

36,515

23,441

44,924

144,329

64,821

465,960

54,516

91,866

Liquidmilk

Cream

Skimmedmilkpowder

Whole milk powder

Evaporatedandcondensedmilk

yogurt

Butter

Cheese

of which processed cheese

ofwhichCheddar

Source:HMRC


83


Liquidmilk–bulk

Liquidmilk-packaged

Cream

SMP

Whole milk powder

Evaporatedandcondensedmilk

yogurt

Butter

Cheese

of which processed cheese

ofwhichCheddar

4,783

65,470

744

9,809

23,317

2,437

2,006

7,898

34,855

456

21,511

539,029

81,618

20,939

40,924

73,246

19,094

21,422

41,766

160,661

11,073

75,316

Table26.UKDairyExportsin2016–tonnes


534,246

16,149

20,195

31,116

49,929

16,657

19,417

33,867

125,806

10,617

53,805

% of UK production

3.6

1.2

13.8

89.2

117.5

8.2

9.1

11.5

32.6

47.8

18.5

Source:HMRC

Thegrowthprospectsfordairyarestronglypositive. Demand is being driven by population sizeandeconomicgrowth.Thereisalsoastrong desire on the part of the dairy industry

fUTURE gROWTH PROSPECTS fOR THE WORlD MARKET

to move production into new and innovative products that respond to new consumer needs andgrowvaluetothebenefitofthewholesupply chain.

CONSUMPTION gROWTH

World consumption of fresh dairy products and processed dairy products is expected to grow annually by 2.1% and 1.7% over the next decade.

Developing countries are expected to consume around 67% of fresh dairy products, mostofwhichisconsumedinAsia,withthissharerisingto73%overthedecade.In

developed countries, increasing per-capita consumption of processed dairy products, mainlycheeseandWMP,isexpectedandathigher rates than over the past decade.

Consumptionofdairyproductsindevelopingcountries is forecast to increase on average at around 2.0% whilst, in developed countries, the rate is projected to increase on average by 1.2%.

84

World

OECD

non-OECD

EU-28

UnitedStates

Japan

China

India

Australia

Mexico

Sub-SaharanAfrica

Algeria,Egypt

Brazil

Russia

Ukraine

51,437

27,306

24,131

14,097

8,035

562

3,260

5,767

503

1,446

1,051

1,578

2,043

1,711

318

16.2

12.2

21.1

9.0

18.1

-2.2

22.2

27.6

10.8

12.5

29.1

25.2

20.4

13.5

9.1

Table27.UKDairyImportsin2016–tonnes


44,269

24,346

19,923

12,931

6,802

574

2,668

4,518

454

1,285

814

1,260

1,697

1,508

291

Source:OECD

30

25

20

15

10

5

0

Mill

ion

ton

ne

s

OECDcountries

CountriesoutsidetheOECDarea

Graph23–Outlookfordairyproductconsumption

2015-17 2026 2015-17 2026 2015-17 2026 2015-17 2026

Butter Cheese SMP WMP

Source:OECD


85


AccordingtotheOECD-FAOAgriculturalOutlook 2017–2026 it is expected that real price of butter will decrease slightly over thereferenceperiod,whilethoseofSMP,

WMPandcheesewillincrease.Priceswillbesupported by strong demand for milk and milk products but nominal prices are not expected toreturntothepeaklevelsof2013.

US

$/

to

nn

e

Graph24–TrendsinWorldDairyPrices

Source:OECD-FAOAgriculturalOutlook2017-2026

5,000

4,000

3,000

2,000

1,500

500

1,000

0

1987

1989

1991

1993

1995

1997

1999

2001

2003

20052007

2009

201120

132015

201720

192021

2023

2025

3,500

2,500

4,500

SMP

WMP

Butter

Cheese

86


• WorkcollaborativelywiththeindustrytoFacilitatetheindustryinexploitingexportopportunitiesaroundtheworld;

• EnsurethattheUK’sreputationforfoodsafetyisproperlysafeguardedandenhanced;• Streamlinetheadministrationofexporthealthcertificatesbydevelopingasystembased

on authorisation of processing plants, instead of the current system of authorisation by consignment;

• Consolidatetheadministrationofthediverserangeofexportcertificatesrequiredbyexportersintoasingle‘onestopshop’;

• Ensureforeigninspectiontoursareadequatelyresourcedandthatanyresultingissuesidentifiedareaddressedinatimelymanner;

• EnsurethatanyFTAscreategenuinemarketaccessopportunitiesfortheUKdairysectorwhilst ensuring that it is not subject to unfair import competition in its own domestic market.

NUTRITIONAl EDUCATION AND PROTECTION

13.

87


TheDairyCouncilistheonlyorganisationinthe dairy industry with a dedicated remit of protecting and promoting the human health benefitsofdairyproducts.

TheDairyCouncilplacesastrongemphasisonproviding information to health professionals which both promotes dairy nutrition within a healthy balanced diet and active lifestyle and dispels misconceptions around the role of dairy in the diet.

In addition to its work with health professionals,theDairyCouncilprovidesevidence based nutrition information to consumers and is the only organisation within thedairyindustrywhichiscertifiedtocarrytheInformationStandardonthematerialsitproduces for the public.

NUTRITION EDUCATION AND PROTECTION

TheInformationStandardwasdevelopedbytheDepartmentofHealthinresponsetothelarge amount of health and care information availabletothepublicandpatients.AnyorganisationwhichachievescertificationundertheInformationStandard’sruleshasundergone a rigorous assessment to check that their information production process generates high quality information that the public can trust.

TheDairyCounciloperatesanextensiveoutreach programme for health professionals and those involved in industries allied to health. In the last year it has disseminated information on a diverse range of topics including: healthy aging, saturated fat, obesity, iodine and sport to name but a few.

DAIRY NUTRITION AND HEAlTH: TAlKINg TO THE PROfESSIONAlS

Disseminationwasachievedby;• OrganisingconferencesallovertheUKfor

healthprofessionalsandhealthwriters;• Presentingwithinacademicdepartments;• Attendinghealthrelatedtradeshows;• Publishingreportsandpapers;• Publishingnewsletters.

88

Tiny teeth! A short guide to healthy teeth for the under fives

A short guide to healthy eating for one-to-fives

Tiny Tums!

MilkItForAllIt’sWorthisTheDairyCouncil’ssocial media based campaign for active young people.Withover230,000youTubeviews,11,000Facebooklikesand10,000Twitterfollowersthiscampaignpromotesthebenefitsof drinking milk and being physically active to teenagers.

Thepublicwantsinformationitcanrelyon.TheDairyCouncilhasarangeofpublicationswhich span all life stages and provide accurate informationon;• dietinpregnancyandearlychildhood;• calcium;

A short guide to healthy eating for one-to-fives

Baby Nosh!

A short guide to eating well during pregnancy and breastfeeding

Baby Bump2

IF YOU ARE

LOSING WEIGHT

YOU CAN DO SOMETHING ABOUT IT!

AND YOU SHOULD TELL SOMEBODY ABOUT IT!

EATING AND DRINKING ENOUGH IS IMPORTANT TO MAINTAIN YOUR HEALTH

DAIRY AND BODY WEIGHT

DAIRY NUTRITION AND HEAlTH: TAlKINg TO THE PUblIC

• iodine;• thecompositionofdairyfoods;• dairyandbodyweight;• saturatedfat;• milk;cheese;• yogurt.

TAlKINg TO TEENAgERS VIA SOCIAl MEDIA

13.nUTRITIOnALEDUCATIOnAnDPROTECTIOn

89

the white paper - dairy ukrural impact of dairy dairy is the bedrock of local communities. local...

Documents