Farm exporters try to gauge impact of ‘Brexit’ vote


Issue Date: July 6, 2016
By Ching Lee
California shipped more than $470 million worth of agricultural products to the United Kingdom in 2014, according to the University of California Agricultural Issues Center, with wine and nuts among the top exports to the U.K. Observers say the sharp drop in the value of the British pound following the “Brexit” vote could reduce demand for California farm products among U.K. customers, as prices of these goods become more expensive.
Graphic/Sarah Lee

With the United Kingdom's vote to exit from the European Union, international trade experts say the most immediate concern for California agricultural exporters is related to currency valuations that could further raise the price of U.S. goods for customers abroad.

The European Union ranks as the top export market for California farm products, with a value of more than $3.7 billion in 2014, according to the University of California Agricultural Issues Center. The U.K. was the No. 3 export destination among the 28 EU members that year, with sales totaling more than $470 million.

Movement of both the British pound and the euro "are what people are watching in the short run," said Dan Sumner, director of the AIC. A higher-value dollar against both currencies would make California farm exports less competitive in those markets, thereby reducing demand.

In the days following the "Brexit" vote, the pound-to-dollar exchange rate dropped to its lowest level in more than 30 years, while the euro also weakened.

"Clearly, the fact that the pound has now fallen in value dramatically against the dollar will make it more expensive for the Brits to buy any kind of goods and farm products from California," said Jock O'Connell, a Sacramento-based international trade advisor for Beacon Economics.

If the pound recovers, trade relations between the Golden State and the U.K. could improve, he said, but the recent devaluation of the pound will "almost immediately start affecting demand" of goods shipped by California growers and food processors.

In the immediate future, though, the Brexit is unlikely to cause any major shifts in shipping logistics because the U.K. has not yet begun negotiating its withdrawal from the EU, a process that is expected to take at least two years, O'Connell said. Until then, the U.K. will continue to operate under EU trading rules and tariffs.

John McLaren, U.K. director for the Wine Institute, said while impact from the Brexit "is impossible to quantify at this stage," shipping, tariffs and other trading procedures will remain unchanged for the time being, as the U.K. embarks on negotiations for new trading agreements with major nations and blocs.

Wine is the state's No. 1 agricultural export to the U.K., worth more than $214 million in 2014 and accounting for 41.5 percent of all California wine shipments to the EU. Other top California farm exports to the U.K. include almonds, raisins, table grapes, walnuts and pistachios.

From a shipping standpoint, Sumner said the Brexit could put California on the same footing as other EU exporting countries that ship to the U.K, as they will all be treated as separate nations. Shipping from the EU to the U.K. may become harder, while shipping from California may remain the same.

Looking forward, Sumner said he is optimistic the U.S. will be able to reach a bilateral trade agreement with the U.K. "even if a trade deal with the rest of the EU proves to be almost impossible."

"I think it'll be a heck of a lot easier to deal with the British alone" than the EU as a whole, said Fred Klose, executive director of the California Agricultural Export Council.

Klose attended the London Produce Show last month, and described the U.K. market as offering "the most potential" for the state's fresh produce compared to the other European markets. He said he sees the Brexit as an opportunity for the U.S. to strike new trade deals with Britain and "get out from underneath the European tariffs" that currently hinder movement of California farm products.

Klose pointed out that the U.K. already is a huge importer of food and does not grow many of the agricultural products that California produces, so there is no strong reason its government would put tariff barriers on those items.

O'Connell said the future U.K. government "may decide it's in their best interest to negotiate a treaty that enhances their diplomatic and national security links with the U.S.," and in return, the U.S. may see some trade benefits—but that all remains to be seen.

"We'll certainly have to work out a new regime for trading with the U.K. once they exit the EU," he said.

For now, there is concern the Brexit could put the vitality of the EU at risk, O'Connell said, noting that stresses in the European economy, such as the debt crisis, already exist.

"We've seen a small dip in the value of the euro. That in itself could have an impact on trade," he said.

He added that while exports to the EU will continue and remain substantial, growth prospects "aren't particularly good."

(Ching Lee is an assistant editor of Ag Alert. She may be contacted at clee@cfbf.com.)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.