Brexit creates a complicated picture for commodities investors
Adam Sharpe, Editorial Director, Informa’s Agribusiness Intelligence
As the EU’s chief negotiator Michel Barniermade clear recently, the clock is very much ticking on negotiations for the UK’s exit from the European Union. The amount that needs to be discussed and resolved remains huge, and one area set to be very complicated indeed are the agriculture and food production industries.
Supply chains between the UK and the EU are incredibly intertwined and trade of finished products is vast. There is a received wisdom that the UK will be negotiating with a ‘single entity’ of the European Union. However, this ignores the much more complicated and nuanced picture of different interest groups amongst the EU’s remaining 27 member states.
So based on the interests of farmers across the EU, what kind of deal can the UK expect to get as Brexit negotiations continue? There is an argument that many farmers would benefit from as many restrictions being placed on the UK’s ability to export agricultural products to the EU as possible. This includes the French beef industry which looks set to profit from less British competition. They might also push for a harder border between the UK and Ireland, spottingthe potential to fill the vacuum in markets that British beef might soon be less competitive in.
However, there are many more reasons to think that a deal that restricts trade too much might actually be unpopular with the EU’s farmers. Many rely on the UK market as a key destination for their products. Farmers across the EU will likely already be lobbying their national governments to influence negotiation towards the result that they want to see, particularly those that could see sales and profits slashed. The National Farmers Union here in the UK is certainly already making sure it has its interests represented at the negotiating table.
For example, countries such as Germany and the Netherlands rely on the UK as a key agricultural export market. In fact, the Netherlands last year was the biggest EU food exporter to the UK, with an estimated value of over £5billion. Many will argue that they have little to gain from having to find replacement markets elsewhere. Irish farmers in particular will be arguing against the introduction of a hard border that makes trade with the UK much more difficult.
In terms of agricultural trade, any developments that hamper exports of UK goods to EU markets will be seen as beneficial to French farmers supplying beef, lamb and dairy products. The ‘harder’ the Brexit, the more difficult things will become for UK exporters as there will likely be a need for checks at the border to ensure that UK goods comply with EU rules on product quality, animal and plant health status, etc. This will have a deleterious effect on the ‘just-in-time’ supply chains which UK businesses have developed with their European partners.
French farmers are also calling for a hard border in Ireland to ensure that any cheap product that the UK might want to import under future new trade deals with the US or Brazil does not ‘leak’ across into the EU market. Of course, countries exporting significant amounts to the UK will not relish the creation of a hard border with the UK, whether by land or sea.
What is important to remember is that different farming sectors in different member states are likely to have their own unique views on what kind of a deal should be struck with the UK as it leaves the EU. It will be interesting therefore to see where farming groups are most able to get the ear of their national governments to push their specific agendas. The consequences for this shape the effect on both farmers and consumers, who face the prospect of price and product changes in their local supermarkets.
Plans for the agribusiness sector post Brexit are still up in the air, but one thing is clear – resorting to WTO tariffs for imports and exports will be catastrophic for farmers on both sides of the Brexit divide and will have far-reaching consequences for the UK economy. The absence of a deal would in itself be a bad deal for agribusiness across both the UK and the EU, and consumers would also expect to see prices rise quite dramatically.
There is still time to negotiate a deal that benefits both the UK and EU’s farmers, but the ticking of the clock should not be ignored. For those of us watching how these negotiations progress, one possible indicator of the end result will be which farming groups are lobbying the most, and which are successfully getting the attention of their governments. With so little hard information coming from either sides of the negotiations, farmers and the farming industry could well be one of the few indications we have as to the future relationship between the UK and the EU.
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