How Brexit May Complicate U.S. Food Exports

Barring legal challenges, by March 2017, the U.K. intends to submit a formal resolution to the European Union (EU) to begin a two-year process of withdrawing its membership and establishing new trade and other agreements with the 27 remaining EU member countries, the U.S., and other nations. Food safety experts, economists, and agricultural analysts agree that Brexit will have a major impact on U.S. food exports to the U.K. and Europe. But the specifics are likely to remain uncertain until the process is completed by early 2019.

“It is difficult to say what the implications for businesses will be until more is known about the U.K.’s future relationship with the EU agreed as part of the exit negotiations,” says Paul Friedman and Alistair Maughman, attorneys in the London office of the international law firm Morrison & Foerster.

One likely effect, however, will be continued currency fluctuations and economic uncertainty. Immediately after the June 23, 2016 referendum for the U.K. to leave the EU, the British pound sank and global equities plummeted in a record-setting $2 trillion single-day loss amid fears of a worldwide economic collapse. While the situation has since stabilized, a continuing weak British pound will make U.S. products more expensive and affect the competitiveness of U.S. agriculture and food exports to the U.K.

Those exports totaled $2.7 billion in 2014, led by consumer-oriented food and beverage products ($983 million or about 37 percent of the total), according to the USDA’s Foreign Agricultural Service. The largest components of this category were wine and beer, tree nuts, prepared food, processed fruit and vegetables, and snack foods.

And while the U.K. remains the leading European market for U.S. goods and services overall, the food and agricultural portions are tiny, with the U.K. accounting for only $1.8 billion or 1.35 percent of America’s $133 billion in worldwide agricultural exports in 2015. Eggs and egg-related products were the only category in which the U.K. made the top 10 list for U.S. agricultural products, according to a report from AgriBank, a farm credit bank in St. Paul, Minn., which supports farm associations in 15 mostly Midwest states.

“In the short-term, Brexit will have little impact on the bottom line for most domestic producers,” the AgriBank report says. Because the U.K. will remain in the EU for up to two more years, existing trade agreements will remain in effect during that time. The larger question is whether Brexit is an isolated event or represents the start of a larger protectionist trend that spreads across the EU and beyond.

“The thing that could move this from a relatively minor blip to a full-blown crisis is how the geopolitical issues play out,” explains Luis Sahmkow, AgriBank’s vice president and treasurer. “There are also EU members like the Netherlands and Finland that have fairly high levels of ‘Euro skeptic’ sentiment, and it remains to be seen if voters in those countries will push for exit referendums,” he says. “If so, that will drive even more uncertainty.”

Such Brexit-related uncertainty is clearly not good for U.S. food and agricultural producers, which have struggled to increase their EU-related market share. For example, while the U.S. enjoyed a $16-billion global trade surplus in agricultural goods in 2015, it suffered a record $12-billion agricultural trade deficit with the EU.

Some experts are sanguine about Brexit’s impact on U.S. food exports. “Brexit will have no impact per se unless the U.K. puts up non-tariff trade barriers at some point down the road,” says David Acheson, MD, founder and CEO of The Acheson Group and a former FDA associate commissioner for foods. But others say that if Brexit goes through, tariffs could rise because trade deals and policies would need to be renegotiated. For U.S. food businesses that use Britain as their gateway to the rest of the EU, this could mean increased costs to gain access to European markets. “There will likely be tariffs to pay for cross-border market access,” said Matthew Beesley, head of global equities for Henderson Global Investors. “It is to be negotiated, so we just don’t know. This is the uncertainty,” he told CNBC.