The decision made by the U.K. to leave the European Union after a referendum back in June has taken many by surprise, not least maybe in the U.K. itself. As a result, however, there is now a series of impacts that will be felt first and foremost in the U.K., and then in many other places around the world. The reality is that with so many areas still uncertain, there are probably more questions than answers at the moment. There are some indicators where, with a bit of lateral and logical thinking, it is possible to start developing a view of how the future might begin to look.
A recap of what happened might be a sensible place to start. The vote was 52 to 48 percent in favour of leaving the EU. Much of the debate in the run up to the referendum was centred around key issues such as: migration from the rest of Europe (and beyond) to the U.K., the impact of new financial streams being available to areas, such as health and education, rather than being allocated to the EU Commission in Brussels, and the ability of the U.K. to re-determine its own laws and regulations as opposed to being subject to these being decided on by organisations such as the European Parliament. The vote across the U.K. was split in terms of geography — with Scotland and Northern Ireland voting strongly in favour to remain, and Wales (as well as large parts of England) opting to leave.
For the U.K. to now formally leave the EU, the government has to trigger the so called Article 50, which would give the U.K. up to two years to negotiate its exit from the rest of the EU. When the U.K. government actually does this is not clear, but as time goes by, it will come under increased pressure to make a final decision on what it has been mandated to do. It has been argued that for the time being, over the next two years; therefore, that not much might change. This seems to be wishful thinking.
A number of things are almost inevitable. The first, from a U.S. export point of view, is currently the Pound reached its lowest level against the US$ for a generation — making imports from the U.S. more expensive. The U.S. also has the import tariffs it pays set at a European-wide level. By leaving the EU, the U.K. will have to negotiate its own trade deal with the U.S. It might be that, ultimately, this looks a lot like what is already in place. But no one knows for sure.
The whole situation is complicated by the fact that the U.S. and the EU have for some time already been involved in the Transatlantic Trade and Investment Partnership (T-TIP) talks. These are by no means finalised, but are at some form of advanced stage of discussion. The appeal for the U.S. of having to start all over again with the U.K. in a separate trade agreement might be somewhat dampened. Much will also depend on the outcome of the U.S. election in November. Where there is a will, there is a way, of course, but even negotiating a relatively simple trade deal might take some time. If an agreement cannot be reached in the two-year period, it will be likely that basic WTO (World Trade Organization) tariff rates will be adopted between the U.S. and the U.K.
The other consequence is U.K. farmers will no longer be subject to the rules of the Common Agricultural Policy (CAP). This makes payments of some US$4 billion per annum to British farmers. These are split between so called Pillar I and II payments for production and environmental subsidies respectively. The view of the U.K. Treasury has, for some time been, that Pillar I payments do not fit with current U.K. government thinking.
While these would probably not be phased out altogether, it is possible that they might well be reduced over a period of time. Across the board, U.K. farmers might well be less subsidised than in the past. Payments for good environmental practice are likely to remain in place. Farming organisations will oppose cuts in payments to farmers, but the demands of other sectors of the economy will see increased competition for government funding.
Theoretically, there should be more market opportunities for the U.S. — provided these American companies can meet all the other technical and commercial requirements of the U.K., which include price. The U.K. market will be no less competitive than in the past. Just having a competitive price does not guarantee market success. The opportunities will also be open to others — not just the U.S. Reduced CAP support will increase the basic opportunity for a less protected market.
Some routines won’t change though. The U.K. is still a big import market, whether it is in the EU or not — some 65 million people. We still like U.S. fruit, although we also like fruit from Chile, SA, NZ, Peru and other EU countries such as Holland, Spain, Italy and France. Supermarkets will still drive the overall market, but growth will still come from the development of more discount stores, online shopping and the convenience sectors. The U.K. will still have high commercial and technical standards to adhere to for all suppliers — including those in the U.S. who want to deal with British customers, in either the retail or foodservice sector.
At this stage, it is still too early to tell what will happen in terms of the final detail. The real action will begin when Article 50 is activated. What is clear is some aspects of life in Britain will never be the same again. The decision to leave the EU will have far reaching consequences for our relationship with the rest of Europe, and then the rest of the world for years to come, and this includes our relationships with the U.S.
John is Divisional Director at Promar International, the value chain consulting arm of Genus plc. He has worked extensively in the fresh fruit sectors and this includes work in the UK, the US, Latin America, South Africa, Oceania and Asia. He can be contacted at the following email: [email protected]. He is the current Chair of the Food, Drink & Agricultural Group of the Chartered Institute of Marketing.