Brexit
In a referendum on June 23, a majority of U.K. voters, which includes England, Scotland, Wales, Northern Ireland and Gibraltar, said they want to leave the E.U.
 
LONDON, ENGLAND — U.K. agriculture groups said it is too soon to know what impact the nation’s vote to leave the E.U. will have on the grain and milling industries, but they plan to work closely with government officials to ensure any new policies are in the best interests of the industries they represent.

In a referendum on June 23, a majority of U.K. voters, which includes England, Scotland, Wales, Northern Ireland and Gibraltar, said they want to leave the E.U. The decision has come to be known as “Brexit.” The final vote was 52% in favor of leaving and 48% to remain in the E.U.

Turnout was 71.8%, or more than 30 million people, for the highest turnout in a U.K.-wide vote since the 1992 general election. 

“Apart from the result, no-one really knows very much at this stage,” Alexander Waugh, director general of National Association of British and Irish Flour Millers (nabim), which represents the U.K. flour milling industry, told World Grain. “Clearly, nabim will be working hard with members and U.K. government officials to establish the implications for the milling sector, our customers and suppliers – but we don’t expect any quick answers. And in the short term, we don’t expect any material change that will affect day-to-day business – apart from stock and currency market volatility.”

The U.K. has 30 companies operating 50 flour mills, with the four largest companies accounting for 65% of flour production. The industry is the single largest user of domestic wheat and has total turnover from all sources of more than £1 billion per year. Total flour production in 2014-15 was 5.3 million tonnes.

Commodity markets reacted immediately to the decision, with Chicago corn, soybeans and wheat dropping 2% on June 24. The U.K. decision is bearish for commodities, but whether it’s impact will last three months or three years is yet to be determined, Dan Basse, president of AgResources Company, told World Grain. 

But the big play is in currency, he said, noting that the dollar was sharply higher relative to the euro and the pound.

“This is one of those black swans that will take a while to understand and to realize the ramifications,” Basse said. “This is going to be a long tail, it’s not a one and done.”

Most economists have warned that the Brexit would prove harmful to the British economy, and that the agricultural sector could be especially hard hit, absent major mitigating steps. In particular, there have been predictions that land prices will fall sharply in value and that many growers may be forced out of business. Industry estimates peg E.U. subsidies and environmental subsidies as responsible for about 60% of farmer income in the U.K. The Common Agricultural Policy accounts for nearly 40% of the E.U. budget, costing about €58 billion per year. Direct payments to U.K. growers totaled €3.1 billion in 2015. At question is with what the U.K. would replace these subsidies or how it would transition its growers to greater free market orientation.
Average agricultural E.U. tariffs stood as 12.2% in 2014, but variation by product group was wide. Tariffs for dairy products exceeded 42%.

Reacting to the vote, financial markets plunged. On the London Stock Exchange the FTSE 250 index on June 24 dropped 7.19%, though the index partly recovered from an intraday low down more than 12%), the British Pound Sterling plunged 9%, to $1.3636 and the Euro slid 2.6% to 2.57. The price of oil at mid-day was down $2.21 per barrel, off 4.3% (Brent crude).

U.K. food stocks fell sharply, though generally not to the same degree as the FTSE 250. Shares of Associated British Foods fell 1.9%, Greencore Group declined 6.5%, Greggs P.L.C. plunged 14.5%, Premier Foods fell 4.9%; Sainsbury P.L.C. dropped 8% and Tesco fell 3.2%

England's Prime Minister, David Cameron
U.K. Prime Minister David Cameron said he will step down.
Prime Minister David Cameron, who did not support leaving the E.U., said he will step down noting that the country needs “fresh leadership to take it in this direction.” He will continue in his position with his Cabinet for the next three months, but recommended a new prime minister be in place by the start of the Conservative party conference in October. 

The process to leave the E.U. will take some time and will be guided by Article 50 of the Lisbon Treaty. However, it’s unclear how the process will work since it has only been in force since 2009, and this would be the first test of it.

Until that time, E.U. law and treaties still apply, but the U.K. will not take part in any decision-making. Cameron said he will leave it to his successor to invoke Article 50.

The National Farmers’ Union (NFU), which had said it was in farmers’ best interest to stay with the E.U., said the vote will lead to “a period of uncertainty in a number of areas that are of vital importance to Britain’s farmers.”

The NFU, which represents British farmers, said it has called an extraordinary meeting of its governing body, the NFU Council, for July 1.

“The NFU will engage fully and constructively with the British government to construct new arrangements. This needs to happen as soon as possible,” said NFU President Meurig Raymond. “Our members will rightly want to know the impact on their businesses as a matter of urgency. We understand that the negotiations will take some time to deliver but it is vital that there is early commitment to ensure British farming is not disadvantaged. It is vital that British farming is profitable and remains competitive, it is the bedrock of the food industry – Britain’s largest manufacturing sector.”

The NFU said it will work to achieve the best possible access to Europe’s markets, ensure farmers and growers have access to needed labor and build a British agricultural policy, which is as simple as possible. 

“There must be a common framework of a British policy, while allowing a necessary degree of flexibility to devolved governments,” Raymond said. “Regulations and product approvals must be proportionate and based on risk and science.”

The Agriculture and Horticulture Development Board (AHDB), formerly the Home Grown Cereals Authority, agreed that it is necessary to target the best new trading relationships possible for U.K. food and agriculture, both with the E.U. and other countries. The AHDB is a board funded by farmers, growers and others in the supply chain, covering 75% of total U.K. agricultural output including cereals and oilseeds.

“AHDB has the skills and expertise to contribute to this work in areas such as market prioritization, market access negotiations and facilitating relationships between U.K. exporters and overseas buyers,” said AHDB Chief Executive Jane King. “We stand ready to support the industry in identifying how it can best compete outside the E.U. These issues will take time to resolve, but AHDB will play a full part in ensuring U.K. agriculture is a leading player on the global stage.”

The Tenant Farmers Association said it has already set out a potential draft policy preparing for an exit of the U.K. It will use that as a basis to begin discussions with the English and Welsh governments.

“The debate leading up to yesterday’s referendum has been passionate but divisive, and we now need to work on building a new consensus about how we build a post-E.U. Britain. As with the rest of the nation, the farming community has had split views on whether it was right to remain a member or leave the European Union, but we must all now deal with the reality of the situation within which we find ourselves and press on to ensure a smooth exit and building a secure future for the U.K. outside of the E.U.,” said George Dunn, chief executive of TFA, which represents tenant farmers in England.

“There is much work to be done on the big issues facing the farming industry including living with volatility in world markets, adapting to climate change, applying new technology, dealing with animal diseases, the use and development of pesticides and other farm chemicals and securing food and environmental security. We must now find our own solutions to these important issues which will require us quickly to put aside our divisions over the referendum question and press on toward working together to address these important areas of work.”

For the 2014-15 crop year, the U.K. was the fourth largest grain producer in the E.U.-28 at 24.5 million tonnes, ranking behind France, Germany and Poland. 

The Agricultural Industries Confederation, which represents Britain’s animal feed industry, said  in a statement: “The U.K. feed sector shares the same desire for stability and certainty as the rest of industry. At this point in time there are few if any clues about the negotiating priorities the U.K. will take into negotiations with the rest of the E.U. over the next few months. Indeed it was one of the concerns we sought to highlight during the referendum campaign. Irrespective of the outcome, the feed industry and the whole U.K. livestock sector must continue to be competitive and our requirements for imported feed materials, particularly vegetable protein, remain the same. The U.K.’s ability therefore to retain a similar trading position will be dependent on the forthcoming negotiations recognizing the requirements of the agriculture sector – one of the UK’s biggest manufacturing sectors.  Without that, the risks to food and feed security would be brought more into focus.”