By Prashant Tripathi
The European Union has secured a new trade agreement with the United States that caps tariffs on most EU exports at a flat 15%, bringing welcome stability to exporters. But for the EU’s dairy sector, the deal is a mixed blessing: while it averts the threat of crippling tariff hikes, it also highlights the bloc’s growing competitive disadvantage in the U.S. market.
Tariff Cap Avoids Worst-Case Scenario
The U.S. had threatened to impose tariffs of 20–30% on select EU exports from August 1, a move that could have devastated premium dairy categories such as butter and cheese. The new deal, struck last week, replaces a complex system of product-specific duties with a single, predictable rate.
“This tariff cap gives us certainty,” said one senior European dairy exporter. “We can now plan pricing and logistics for the U.S. market without the constant threat of punitive tariffs hanging over us.”
The U.S. is the EU’s fourth-largest dairy export destination, with shipments valued at approximately €4.3 billion in 2024. Ireland, France, Italy, and the Netherlands are particularly exposed, with high-value products like Kerrygold butter, Parmigiano Reggiano, and speciality cheeses driving much of the trade.
Competitiveness Concerns Remain
Despite the relief, the 15% tariff places EU exporters at a structural disadvantage. Competitors such as New Zealand, Australia, and the UK enjoy tariff-free or low-tariff access to the U.S. under free trade agreements, giving them a price edge on supermarket shelves.
For Ireland, the deal is a double-edged sword. Kerrygold butter, which accounts for nearly €500 million in annual U.S. sales, will avoid higher tariffs but now faces a bigger pricing gap versus UK butter.
French and Italian cheese makers are also vulnerable. “Premium cheeses are already expensive for U.S. consumers. An additional 15% makes it harder to compete with domestic or FTA-sourced alternatives,” said a trade analyst.
Market Dynamics and Global Rebalancing
The tariff regime could slow EU dairy export growth to the U.S. by 1–2% in 2025, according to preliminary estimates. Industry players are expected to divert volumes to Asia, the Middle East, and Africa, where demand is rising and tariff barriers are lower.
This shift may weigh on global commodity prices, particularly for butter and skimmed milk powder (SMP), as surplus EU volumes seek new markets.
Domestically, EU dairy markets remain pressured by muted consumption growth and a robust supply base in Ireland, Germany, and the Netherlands. Price volatility is likely to persist into 2026.
Strategic Imperatives
The deal underscores the need for EU dairy exporters to rethink their U.S. market strategy. Industry observers highlight three priorities:
- Premium Branding: Strengthen brand loyalty in niches where U.S. consumers will pay a premium despite tariffs.
- Diversification: Reduce reliance on the U.S. by expanding into growth markets in Asia and Africa.
- Policy Engagement: Push for sector-specific tariff relief through future bilateral negotiations.
Outlook
While the new EU–US trade deal prevents an immediate escalation of tariffs, it leaves the EU dairy sector competing on unequal terms. With rivals enjoying better market access, the pressure is now on EU exporters to innovate, diversify, and lobby for more favourable conditions.
The coming months will reveal whether this stability is enough to protect Europe’s position in a U.S. dairy market increasingly shaped by geopolitics.
Source: EU–US Trade Deal Brings Stability but Exposes EU Dairy’s Competitive Gap – Jordbrukare
