All eyes are currently on the British as they prepare to vote on “Brexit”, or whether the United Kingdom (UK) withdraws its membership from the European Union (EU). Most polls suggest the “leave” and “remain” campaigns are running neck-and-neck. But a note of caution: even if Brexit doesn’t happen (or doesn’t happen now), the very fact it happened at all could signal more unrest about the EU.
If Britain leaves the EU
Should the UK vote to leave, its government and EU members would enter into negotiations that could last more than two years. Many of the issues driving the debates are well outside the arena of Canadian ag, but make no mistake: a UK exit would have both short-run and long-run impacts on Canadian agri-food markets.
A lower CAD?
With London a major global financial hub, a “leave” vote would create financial instability and volatility in financial markets. Financial institutions across Europe and elsewhere have been preparing for this possibility.
Volatility in the financial markets often means a stronger U.S. currency as investors see it as a safe haven. Other currencies, including the Canadian dollar, may depreciate. But while a stronger USD usually points to weaker agricultural commodity prices, in this case the impact on prices could be minimal as the stronger USD wouldn’t reflect changes in the supply and demand conditions for commodities. And even better: the lower CAD could mean more attractive prices in the short term for commodities priced in USD that Canadian producers sell.
Global trade and UK agriculture
Another impact would be felt in global trade. UK agricultural producers would likely see some significant changes in their agricultural policy framework over the long-run. Any policy framework replacing the Common Agricultural Policy (CAP) would likely offer less support to producers, increasing the exposure of UK agricultural producers to world market conditions.
The UK is also a net importer of food. Their own currency would probably fall as a result of leaving the EU, making it more expensive to import. It’s not clear at this point how easy it would be for the UK to enter into new trade agreements with other European markets. The rhetoric thus far has suggested punitive measures and strained relations.
The Brexit debate in Europe seems to have spurred enough dissent and tension to wonder about financial instability even in the event of a vote to stay. My advice for you? Monitor the financial markets and prepare for more volatility if Brits vote to leave.
Source: Farm Credit Canada