COVID-19 and dairy industry

What will be the effect of COVID-19 on the dairy industry

Jun 1st, 2020

Françoise Vandale, Partner

- Originally published in the Newark Advertiser in May - 

With the lockdown changing the way we eat we are now seeing the impact it is having on certain agricultural sectors. One of the worst affected sectors is the dairy trade. As coffee shops and restaurants are not open at the time of writing this article and milk demand has depleted rapidly. Dairy farmers across our nation are worried about supply massively exceeding demand. Farmer’s Weekly reported a possible excess of 5 million litres of milk. 

The term our “new normal” is one we are hearing a lot recently, but what does it mean for the food industry? What will it look like in the short, medium and longer term? Will things revert back to the way they were in our coffee culture, or will we see people’s buying habits change? As Phil Bicknall, AHDB, states “The bottom line is that foodservice businesses won’t re-open at the same rate they closed their doors. For those that do decide to re-open, it is likely that social distancing restrictions will put a ceiling on their capacity.” 

With milk production accounting for more than 16% of UK agricultural output in 2018, there is no doubt that dairy is the largest sector and thus should be carefully protected against the effect of COVID-19. 

Without specific support from the government to the worst affected agri-food industries, farmers were left turning to the Coronavirus Business Interruption Loan Scheme (CBILS), with all its caveats and pitfalls widely reported. At the time of writing the new Bounce Back Loan Scheme has been announced, which may be of some assistance to the worst affected dairy farmers up to a maximum of £50,000. The loan is 100% backed by the government and as such is set to be a much more simplified process than the CBILS. Also the Department for the Environment Food and Rural Affairs (Defra) has just announced that they will provide up to £10,000 of support to struggling dairy farmers, being 70% of lost income during April and May. 

There appears to be another glimmer of hope and assistance on its way for the dairy sector. BEIS and DEFRA have announced that they are relaxing certain competition rules during the coronavirus outbreak. The objective is to avoid waste, whilst at the same time maintaining future productivity rates when the tertiary sector reopens for business. 

The government envisage the relaxation will allow the dairy industry to think creatively, such as, “sharing labour and facilities, cooperating to temporarily reduce production or identifying where there is hidden capacity in the supply chain for processing milk into other dairy products.” This will allow some of the excess milk to be processed into storable milk products such as cheese, butter and skimmed milk powder products. 

Competition Law is strict and any temporary legislation relaxation should be read in detail before embarking on anything new. If farmers act in contravention of UK Competition Law there are heavy fines and even criminal sanctions, including imprisonment.  

George Eustice, Secretary of State for Environment, Food and Rural Affairs, comments “We welcome our farmers’ heroic efforts in ensuring food supplies remain resilient and will continue to support them through this difficult time.” Let’s just hope this sentiment is brought forward in future legislation of the agricultural sector. Food security is pivotal to the UK’s survival in the new Brexit era and our current situation certainly acts as a stark reminder of this fact.  

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