Britain votes to leave the European Union
Now that Britain has voted to withdraw its membership from the European Union (EU), the question becomes what lies ahead as the country enters 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: the UK exit will 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 could 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 could be felt in global trade. UK agricultural producers will likely see some significant changes in their agricultural policy framework over the long-run. Any policy framework replacing the 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 has spurred enough dissent and tension to wonder about financial instability. My advice for you? Monitor the financial markets and prepare for more volatility.
We’ll be following this issue in the weeks ahead and providing our analysis of what those impacts may be. Check back with us.