Over recent years, much has been made of the phenomenal growth in Irish dairy exports to China. In less than a decade, China has risen to become the second most important export market for Irish dairy ahead of traditional export markets such as Germany, the Netherlands and the US.

For 2018, Irish dairy exports to China, including Hong Kong and Taiwan, stood at €559m. In volume terms, more than 97,000t of Irish dairy products were shipped to China last year, which is a phenomenal increase of almost 22,000t, or 30%, on 2017 exports.

The UK is the only market to which Ireland exports more dairy, roughly €1.03bn worth in 2018 or approximately 190,000t. Yet China is fast closing the gap and will likely move ahead of the UK as Ireland’s number one dairy export market in the coming decade, particularly as the industry continues to diversify away from the UK due to Brexit.

Irish dairy companies need to collaborate more on filling containers to cost-effectively

On the face of it, these numbers paint an impressive picture of Ireland’s dairy industry eking out a major foothold in the world’s largest dairy market, with huge volumes of product being shipped to China every year.

Majority

However, the reality is that the vast majority of these exports to China are in the form of high-value baby formula, which is controlled by the multinational infant formula companies in Ireland including Abbott, Nestlé Wyeth and Danone.

Roughly €490m, or almost 90%, of Irish exports to China in 2018 were infant formula. After this, whey powder is the next highest export, totalling just €28m, or 5% of the total. Ireland also exports €16m of skimmed milk powder (SMP), €12m worth of milk and cream and €3m worth of whole milk powder (WMP).

90% of Irish exports to China in 2018 were infant formula

Exports of butter came to €1.8m last year, while cheese exports stood at €2.6m.

Even in volume terms, infant formula accounts for 60%, or 58,000t, of the 97,000t of Irish dairy shipped to China last year. Whey powder exports totalled 18,000t, while SMP exports came to 9,500t. Butter exports totalled 368t, while cheese exports totalled just over 600t.

This means the amount of dairy being shipped directly to China by Ireland’s farmer-owned co-ops is much smaller at just over 39,000t (valued at €70m) between every product category. While this sort of volume is significant,

China is a far-off market in terms of shipping and transport.

For maximum efficiency, Irish co-ops should work together on transport and shipping in order to bring down costs. Yet the opposite is the case. According to Declan Sinnott, managing director of Rhenus Logistics Ireland, Irish dairy co-ops need to collaborate much more on logistics if they are to succeed in far-off markets.

Competitors

Speaking to the Irish Farmers Journal, Sinnott said many Irish dairy companies are trying to reach markets in Asia, the Middle East and Africa but won’t collaborate on shipping because they perceive each other as competitors.

“The size of a container is constant and the distance to a market is constant. Irish dairy companies need to collaborate more on filling containers to cost-effectively reach markets and then they can compete with each other on the ground over marketing the product,” he said.

“Aggregating demand with your perceived competitors will bring down your costs. Yet Irish dairy companies won’t collaborate on shipping their product even though it’s in their best interests,” added Sinnott.

Brexit logistics: UK landbridge or direct to the continent

Since the vote in June 2016, the sustained weakness in sterling has been the most obvious symptom of Brexit. Irish exporters have struggled to compete in the UK market with sterling hovering around £0.90 against the euro for much of the past two years.

Currency movements aside, Irish exporters understand that Brexit will ultimately mean structural changes to supply chains and logistics routes that we never imagined just a few years ago. For companies exporting to the UK market, Brexit is likely to mean a new regulatory framework in terms of customs and compliance standards. While it’s not yet clear what this new regulatory environment will look like, Irish exporters will simply have to adapt to their new reality when it arrives.

However, for Irish companies exporting to Europe via the UK landbridge, there are alternative options worth exploring. Shipping goods to Europe via the UK is likely to become a much more cumbersome process after Brexit as transit times could be slower and customs paperwork will be required for any new border posts between Dublin and Calais.

To avoid these disruptions, freight forwarders are encouraging Irish exporters to look at new direct routes to continental Europe and bypass the UK altogether. “If you’re an exporter to the UK then you’re just going to have to deal with whatever regulatory framework is in place after Brexit. But if you’re exporting to the continent then it’s important to know there’s lots of routes to get to Europe by bypassing the UK,” said Rhenus Logistics Ireland managing director Declan Sinnott.

“There are several alternative routes to the UK landbridge. Exporters can ship goods from Cork direct to Santander in Spain, Waterford to Rotterdam in the Netherlands, or from Dublin to either Rotterdam or Zeebrugge in Belgium,” he added.

There are several alternative routes to the UK landbridge

Depending on a company’s location in Ireland and the day of shipping, direct sailings to Europe can be just as quick as transiting goods via the UK. Typically, goods shipped direct to Europe will arrive within the two-day window that is now standard for goods transported via the UK landbridge. In a worst-case scenario, direct shipping to continental Europe will add one extra day to transit times.

However, Sinnott argues that Irish exporters can reach new agreements with customers to agree on new key performance indicators (KPIs) for delivery times. If the new KPIs are agreed as three working days, Irish exporters will have no problem moving product to customers in Europe on time. In any case, the standard two-day transit time may not be the case after Brexit, depending on the new regulatory framework implemented by the UK government.

“Let Brexit be Brexit. But for Irish exporters with customers in Europe, it’s important to know you can also sail around the Brexit problem. From a commercial perspective it even costs less to ship direct to Europe,” says Sinnott.

While it may currently be cheaper to ship direct to Europe, freight costs are going to rise in line with the increased demand from Irish exporters looking to bypass the UK altogether.