Expansion of the Irish dairy industry since the end of quotas has required a corresponding expansion in markets.

Irish dairy is competitive in global markets and while threatened by Brexit like every other sector of Irish farming, it had markets outside the UK for three-quarters of its exports in 2018.

Apart from the UK, the top markets for Ireland’s €4bn dairy exports in 2018 were China, the US, Germany and the Netherlands.

Potential for growth

China is the second most important market for dairy exports, as well as pigmeat, with lots of potential for further growth.

However, also in Asia there are two huge importers of agri produce – Japan and South Korea where Ireland has a presence but there is potential to do much more.

Minister for Agriculture Michael Creed will lead a trade mission to both of those countries during the second week of June and Irish Farmers Journal beef editor Adam Woods will travel with this mission and report.

Japan

Japan has a population of 127m people and is the world’s third largest economy after the US and China. Like the other developing economies in Asia, Japan is developing a taste for western diets and imports of agri food have been progressively increasing and forecast to continue doing so. As it is a particularly mountainous country, Japan’s agricultural capability is only sufficient to meet about half of its demand, though its farming sector has priority for government support and is well protected by import tariffs.

Irish dairy exports to Japan carried a tariff of 29.8%, which will be phased out over the next 15 years

These have curtailed Ireland’s exports to Japan but with the EU–Japan free trade agreement coming into effect in February of this year, Ireland and Europe’s trading position with Japan will be much more competitive. Prior to this, Irish dairy exports to Japan carried a tariff of 29.8%, which will be phased out over the next 15 years.

Suppliers

Japan’s import requirement for dairy produce was just over 672,000t in 2017 and is forecast to grow to almost 710,000t by 2021.

Australia and New Zealand between them supply one-third of Japan’s total dairy imports with the US and the EU also major suppliers.

The Japanese farming population is aging and domestic production which has been in decline for several years is at best expected to stabilise around 7.3bn litres

Ireland’s dairy sales in 2018 were worth €42m, of which €38m was accounted for by cheese. In volume terms, Irish exports to Japan were 9,000t, of which 7,700t were cheese.

The Japanese farming population is aging and domestic production which has been in decline for several years is at best expected to stabilise around 7.3bn litres, according to research undertaken by Bord Bia.

Domestic supply is targeted primarily towards the liquid milk sector which means that other dairy produce is increasingly imported.

Potential

This in turn creates opportunity as imports are forecast to increase further, which Irish exporters can exploit. There is particular potential for cheeses in the food ingredients category with almost 225,000t imported in 2017 and similarly 80,660t of butter was imported in total for the food ingredients sector.

Also, the food industry users of dairy imports in Japan are conscious of exposure level to Australia and New Zealand supplies and there appears to be a very open mind on broadening the supply base for imported dairy produce.

For many exporters to Japan, business is conducted with third-party agents but major Irish dairy exporters have a presence in the market and have direct trading relationships with customers

Doing business in Japan and other Asian markets isn’t about opportunist trading but rather a slow building of relationships and customers, when established, tend to be loyal.

For many exporters to Japan, business is conducted with third-party agents but major Irish dairy exporters have a presence in the market and have direct trading relationships with customers.

With the reducing tariff, growing demand for dairy products alongside a limited domestic production, it is likely that Japan’s growing appetite for dairy products – both for direct use and as an ingredient – will be serviced by imports in the years ahead and Ireland can be in the forefront of supplying this demand.

South Korea

South Korea is in some respects like a smaller version of Japan with its developed economy a more recent occurrence and therefore inclination towards a western diet less developed but growing. It has a population of 51m and is ranked as the eleventh largest economy in the world, with rapid industrial growth in industry and technology over the past 50 years.

It is already an importer of Irish pigmeat though beef remains excluded with the ban imposed since BSE was discovered 20 years ago. It will also feature on the minister’s trade mission and no doubt removal of this ban and access for Irish beef will be a priority.

Irish dairy is also present in the South Korean market with sales of €5m in 2017 and 1,500t of product. Irish dairy exports were primarily made up from casein, skimmed milk powder (SMP) and whey, with between 300,000t and 400,000t of each sent from Ireland.

Size of market

The South Korean dairy market is growing steadily over recent years. In 2013, dairy imports were just under 162,000t growing to 195,000t in 2017 and forecast to reach 221,000t by 2021.

Half of imports are cheese for ingredients with whey and SMP being the next largest categories.

The country has its own dairy industry and again is heavily protected by government.

The EU has had a free trade deal in place with South Korea since 2015 but the level of quotas are extremely low

Despite this and a price equivalent of 88c/l, production is in decline with 2.1bn litres produced in 2017, a 6% decline over the past decade.

The EU has had a free trade deal in place with South Korea since 2015 but the level of quotas are extremely low and will be increased in 2021 and 2026.

In the case of milk powders, the quota is 1,194t for the EU increasing to 1,212t in 2026.

Under this, there is no import tariff but imports above quota carry a tariff of 176%, the same as other main exporting countries to South Korea.

Suppliers

The top exporter to the market is the US which sold almost 75,000t in 2017 followed by New Zealand on just under 29,000t.

Germany exported 20,000t which is marginally more than France on 19,800t with Australia the fifth largest supplier on 18,000t.

Compared with these countries, Ireland on 1,500t is a small supplier.

Comment

The majority of Irish dairy exports will continue to be with the UK, the US and other EU countries for the foreseeable future.

In the context of today’s trade, Ireland’s main interest in Asia is China and that is a market that will grow for all sectors of the agri-food industry.

However, Asian economies are among the fastest growing in the world and all are dairy importers.

These will be growing markets for Irish exports in the years ahead and will be important markets a decade from now.