Article 50 could be a boon for non-EU agricultural exporters

30.03.2017

Brexit could be good news for agricultural exporters outside the EU, if the UK government decides to prioritise low food prices, by adopting a so-called New Zealand model, the Dutch agricultural lender Rabobank said.

But whatever the outcome of the negotiations, an increase in prices for some goods, such as fresh vegetables and olive oil, is more or less inevitable the bank said.

Still, the official launch of negotiations to leave the EU did little to disrupt UK markets on Wednesday, with the pound barely wobbling, and UK wheat prices trading both sides of unchanged.

Article 50 triggered

In a letter to EU president Donald Tusk, the British prime minister Theresa May official triggered Article 50, launching a two-year negotiation on the terms of the UK's exit.

Attention will now focus on the exact details of future economic and trade relations between the UK and the EU, whether these are an interim agreement, or a permenant trade deal.

"Much of the current focus on how Britain will trade post-Brexit revolves around the UK continuing trade with the EU or providing additional protection to its farmers by imposing protectionist import tariffs," said Harry Smit, senior analyst at Rabobank.

"Yet in our view, a third possible scenario not being as widely discussed is the New Zealand model – essentially a 'present to the rest of world' in which it eliminates all food import tariffs, possibly as a quid pro quo for receiving more favourable terms for its key export sectors, like financial services."

Such a move could be "bad news for the EU," Mr Smit said.  Which has previously had preferential access to British buyers via the single market.

Price increases for some goods are inevitable

 But Rabobank warns that whatever deal is struck with the EU, prices for many agricultural products will increase.

"This is because once the UK is outside the free trade area, it will be forced to impose extra border controls, making importing from the EU more expensive," Rabobank said.

"Olive oil, flowers and fresh fruit such as some types of tomatoes, peppers and pears are among the products the UK cannot produce itself and could only source from the EU, even after Brexit," Rabobank said, suggesting that prices for these products could rise by some 8%.

Muted price reaction

In the shorter term, there appeared to be little market reaction to the triggering, which expected and fully priced in.

"While we don't yet know how talks over the next two years will shape the future of the industry, there may be some immediate impacts to today's historic events," said Brenda Mullen, at AHDB.

"Reportedly, growers who still hold grain in store might have been waiting until after today to market the rest of their crop, in expectation of a currency reaction."

A weaker sterling means better returns for UK grain growers, as exports are more profitable and exports more expensive.

But market reaction was muted, with sterling stable, and UK wheat prices down 0.3% on the day in early afternoon deals, at £148.10 a tonne.

"Brexit- how to navigate the changing terrain" will be among the topics discussed at the Agrimoney LIVE event, to be held on 23-25 May 2017 in London.


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