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How “Brexit” Will Impact Agriculture and Trade

Voters in the UK sent shockwaves rippling through the marketplace when they voted to leave the European Union. Markets don’t appreciate uncertainty and no one knows exactly how or when the “Brexit” will be executed or what trade environment will emerge in the post-split EU and UK. The Brexit is expected to have a sizeable impact on agricultural trade because the EU has a substantial say over agricultural policy in its member countries.

While it is not clear how exactly the Brexit will shake out, OFW Law’s Charlie Stenholm, a former Congressman, Ed Farrell, a distinguished trade attorney, and Nancy Nord, former commissioner of the U.S. Consumer Products Safety Commission, have teamed up to provide their predictions on how the split will impact U.S. and global agriculture and trade. Here is their quick take:

In the short term there will be a lot of uncertainty with currency fluctuations impacting the competitiveness of US agriculture in export markets. The most direct of these impacts will of course be in the UK market where the value of US agriculture exports peaked at $2.7 billion in 2014, with wine and beer leading the way at $237 million.  While the pound has recovered a bit from its plunge after the Brexit vote, it is still down over 10% against the dollar.  In other markets, it will be important to evaluate the relative movements of competitor’s currencies in those markets.  

Longer term, UK farmers will lose a lot of subsidies, ostensibly, in return for less regulation. In 2015, UK farmers received almost € 3.1 billion ($3.42 billion) in direct payments through the Common Agricultural Policy (CAP), which made up approximately 55% of total farm income.  Although it is likely that the UK will pick up the tab for at least some of these lost payments, the impact on farm planning will be significant.  Of more significance to U.S. agriculture interests will be the loss of the UK’s voice in how CAP subsidies are applied.  Due in no small part to the more market-oriented interventions of the UK, the nature of CAP subsidies has changed over time from intervention purchases and export subsidies to dispose of those purchases, to the less market-distorting direct payments now in place. 

The Brexit will also likely impact trans-Atlantic trade amongst American, UK, and EU manufacturers. The US government has been working to establish closer ties with EU regulators from both a regulatory enforcement and standards harmonization standpoint. Given the size and importance of the UK market, the split adds another layer of complexity to those efforts.

Were the UK to have remained in the EU, they would have continued to press for reforms focused on the competitiveness of European agriculture. This would allow for the reduction of the very high tariff walls that still protect EU farmers and hurt their consumers, while reforming CAP to use those payments in pursuit of other objectives, such as reducing environmental impacts or raising animal welfare standards.  

In short, the EU will be losing a market-oriented voice of reason with uncertain, and potentially market-disrupting, impacts on agriculture subsidies. This is not a positive development for global consumers or the market-oriented agriculture industries that supply them.  Fifty-two percent of the UK’s voters have, at the very least, created enormous uncertainty for their farmers and agriculture around the globe.  They may have potentially caused a seismic shift in the future.  Is the US next?  The parallels between the world views of the Trump and Sanders supporters and the Brexit supporters are striking.  Our elections just got more interesting for farmers and everyone else.  It’s going to be a fascinating ride!!!

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