Brexit no trade boost for dairy farmers

By Dairy News

A BANKING economist has cautioned against the dairy industry expecting too much for Australia out of the United Kingdom’s exit from the European Union.

While the UK’s much anticipated exit will occur in March, there may not be very many benefits for Australia in terms of trade opportunities.

NAB economist Phin Ziebell said there may be some opportunities but they could be limited.

"A no-deal Brexit could cut supply,'' Mr Ziebell said, but that opportunity had to be kept in global context.

"Britain was once a large destination for Australian exports but it hasn't been that way for more than 50 years.

"The EU is a free trade zone internally but outside the EU they have very large tariff issues.

“Outside the EU it has large tariff barriers and one of the problems for the UK will be the tariffs they could face.”

Mr Ziebell said the UK today was a much smaller proportion of the world economy, particularly in comparison to Asia or China.

"The gravity has shifted towards Asia and that has been a great advantage for us,’’ Mr Ziebell said.

‘We may not always win or compete in every market but if I had to focus anywhere it would be Asia, rather than worrying too much about the UK.’’

Speaking about the current global opportunities, Mr Ziebell said global dairy trade auctions for most of 2018 were lower, but since then there had been an improved up-tick (with skim milk powder the better performer).

"The EU has run their stock pile down and until now had been a poor performer.

"Over this last year we have also seen Australian dollar go from high 70s, low 80s to low 70s, so we have seen an almost 10 cent drop which is good for us.

"In January our dairy export price indicator was up about nine per cent,’’ Mr Ziebell said.

“Europe is the big issue here. The stockpile Europe and US are close to the top of their five-year production range, but they are not growing any further.”

Mr Ziebell said the last 12 months had seen global production steady.

“The domestic picture has seen step-ups from Fonterra and Saputo, and it almost reached $6/kg, but price is not the problem, it's inputs.

“Our feed grain price is almost at record levels. Eastern Australia has among the most expensive grain in the world at the moment. That is not normal.

“We are out of whack with international benchmarks. The poor season and transport costs impact on that. And we are not really well set up to import grain.’’

On the positive side, NAB’s Agribusiness customer executive Neil Findlay said fuel prices had come back about 20 per cent and energy costs were being managed better.

“A lot of customers are taking up solar and energy efficient programs to contain their input costs. If the payback period and terms work, then it can be a good investment,” Mr Findlay said.

“Some production systems suit this and dairy can capitalise on this because they have constant energy costs through the year.

“We have a Clean Energy Finance Corporation arrangement which reduces interest rates for customers who are installing an energy efficient replacement.”

On dealing with farm gate prices, Mr Findlay said farmers needed to consider options offered by their processor and whether their production system fits in with their processor.

"Whatever they enter into, be sure they can deliver on the specifications,” Mr Findlay said.

"Look at what options are with their processor including supply curves and production system.

"Be active in doing something rather than just accept what is happening.

"At $6/kg, it could be quite different if we didn't have the impact of water and grain.’’