A trading relationship between the UK and the EU based on World Trade Organization rules would be “the worst outcome” from the Brexit negotiations, the British dairy sector has warned.

The slow progress of the talks between the UK and the EU has increased the chance the two sides could run out of time to reach agreement on how they will trade post-Brexit. If they fail to reach a deal, trading will default to WTO rules.

Dairy UK, the representative body for the dairy industry, said the imposition of WTO tariffs would push up the wholesale price of cheddar in the UK by a third and lead to 20% and 2% increases in the retail prices of cheese and butter, respectively. The price of butter has already spiked over the last year amid falling milk production.

“The absolute priority for the UK government should be the earliest possible conclusion of a free-trade agreement with the EU that ensures the greatest possible continuity of existing arrangements. The worst outcome to the Brexit negotiations would be for trade with the EU to be based only on WTO rules,” Dairy UK said in a ‘white paper’ report, which it said detailed the “game-changing” opportunities and challenges the sector is facing over issues including Brexit and consumer confidence in dairy foods. 

Dairy UK called Brexit “the most defining issue the industry has faced for generations”. It said an “unhurried transition period” would give the industry the chance to adapt and take advantage of the “opportunities Brexit creates”.

The wide food and farming sectors have expressed concern about access to labour after Brexit, with EU nationals making up a significant chunk of the workforce.

Dairy UK said access to skilled and unskilled labour is vital and failure to maintain access will drive up operating costs, with a major impact on margins.

It has also called for the Northern Ireland border issue, a sticking point in the early stages of negotiations, to be resolved by creating a “frictionless and seamless border regime that could be a blueprint for future arrangements with the EU”.

More generally, Dairy UK said it is urging the UK government to work with the industry to help exploit export opportunities around the world.

It also said the UK government should ensure that “nutrient-rich dairy products” remain exempt from the Sugar Drinks Industry Levy when it is implemented next year.

Paul Vernon, chairman of Dairy UK, said: “The white paper demonstrates that consumer love for dairy remains very strong, and we have to ensure that we are equipped and ready to continue to help feed the nation for generations to come.

“Brexit is a monumental challenge and a game changer. If Brexit is successfully delivered there is tremendous potential in terms of exports and product development. If it is a failure, there will be far reaching consequences for dairy.

“No effort can be spared by the industry, the UK government and the EU to secure a positive outcome and we will continue to give every assistance to the government to make that happen.”

“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.”

How do you see Brexit affecting your business? Give us your view on that and many of the other hot issues facing the sector in our 2018 Confidence Survey.