Infant milk formula – the opportunity for import displacement

Published 15 August 17

The trade barriers in a post-Brexit environment are unknown, although could add up to 7.6% to the cost of bringing infant food into the UK. According to HMRC, the UK imported 80k tonnes of infant food in 2016, and only exported 5k tonnes. Of this, approximately 60% came from Ireland, with a further 15% from France. However, the trade codes* for infant food do not allow a breakdown into how much of this is powdered milk, and how much is solid food for babies. However, the following can be determined.

Domestic production of infant milk formula (IMF) in the UK is relatively small compared with the size of the domestic market. According to Mintel/IRI, in 2016, domestic consumption of IMF was 55k tonnes, with a retail value of £431m. Of this, the top 3 brands; Aptamil, Cow&Gate and SMA, accounted for 95% of the overall sales value. All three are imported from Ireland.

Displacing imports of IMF would require a significant increase in processing capability in the UK.

There are effectively two ways to produce IMF, either wet-blended or dry-blended:

  • A wet-blend facility can take either raw milk and separate this into skim milk and cream, or buy in skim milk. The majority of additional ingredients are then added in dry or solid form, with the resultant product then dried into powder.
  • A dry-blend route requires all ingredients to be in powder format and available for suitable dry mixing.

In order to displace imports by wet-blending, the UK would need to invest in a powder drier, or expand output from current driers. The dry-blending route could be achieved at a lower investment cost, provided all the ingredients are available at IMF grade.

The chart below estimates the base ingredients that would be required to produce the 55k tonnes of IMF currently consumed in the UK each year.

  IMF production Aug17

The majority of these base ingredients are produced in the UK, including the demineralised whey powder, produced by Dairy Crest at Davidstow. The challenge for some, including the lactose powder and skimmed milk powder, if used instead of skim milk, is ensuring the source is IMF grade. Something that most outputs from the UK have not needed to be in the past.

Displacing imports is not just about being able to produce the product. Any new entrant to the IMF market will also have to compete with the existing brands. With 95% of sales value in just three brands, that would not be an easy market to break into. However, import displacement could also be achieved if one of the current brand owners, such as Danone or Nestle, decided there was a benefit switching manufacturing to the UK to avoid the risk of future trade barriers. There may be an opportunity for an independent manufacturer to offer a contract packing service to help deliver this.

There is a range of scenarios that could impact UK agriculture, and with Brexit negotiations just starting, it is still too early to know what deal will be agreed. AHDB has published a number of Horizon reports that are available for download. Later this year, AHDB will be exploring in detail the trade prospects for dairy and modelling the impact of different Brexit scenarios on the sector.

 * Based on codes 0402 29 11 (Special milk, for infants, in sealed containers less than 500 g, with fat content greater than 10%) and 1901 10 00 (Food preparations suitable for infants or young children, put up for retail sale)