Brexit – should we be worried?

As more than one local economist has noted, Britain’s exit from the EU is unlikely to have a major impact on SA agriculture, good or bad.

Global farming - Dr Koos Coetzee

When UK Prime Minister David Cameron promised a referendum about continued membership of the EU, he clearly did not expect that a majority of British voters would vote to leave the union. But the people have spoken. Brexit will not happen overnight, though, as EU legislation provides for a two-year exit period.

The EU developed out of the European Economic Community (EEC), founded in 1958 by France, West Germany, Italy, Belgium, the Netherlands and Luxembourg. These countries realised that they could not rebuild their infrastructure and feed themselves after the Second World War in isolation.

The EEC removed trade restrictions, including tariffs. Over the years, other countries, including the UK, joined the group and the EEC became the EU.

After the war, many European countries created plans to support agriculture. These were consolidated under the Common Agricultural Policy (CAP) in 1962, which sought to improve agricultural productivity so that consumers had a stable supply of affordable food and to ensure that Europe’s farmers made a reasonable living.

The CAP worked well. In fact, it worked too well; by 1984 it had created massive overproduction of many commodities. These had to be stored and resulted in ‘food mountains’.

While the CAP is a cornerstone of the EU, the union also seeks to control other aspects of life in Europe through the European Commission. The introduction of the euro as the single currency for the EU in 1999 is one example.

For and against
Brexit proponents regard the EU, governed by the European Commission in Brussels, as a threat to UK sovereignty. The commissioners are appointed and are not directly accountable to voters in the UK.

Proponents also object to the EU’s common competition policy, the CAP and rules about intellectual property and copyright. It is felt that Brussels has the interest of ‘corporate elites’ at heart and prevents radical reforms.

In addition, EU citizens have the right to travel, live and take jobs in any EU country and it is believed that a more sensible immigration policy based on Australia’s points system would be better for the UK.

On the negative side, UK citizens may lose opportunities to live and work in other EU countries and the position of other EU citizens currently working and living in the UK will have to be rationalised. The UK may also lose its favoured access to EU markets, but Brexit proponents see this as a benefit, because the UK can then exploit markets outside the EU.

Impact on SA agriculture
In short, the UK exited the EU mainly as a result of fears about immigration and dissatisfaction with its financial contribution to the EU. It would probably prefer to remain a part of the EU trade environment, however.

The Economic Partnership Agreement between South Africa and its neighbours and the EU is supposed to kick in from October 2016. If the UK does not accept the treaty, South Africa will probably decide not to ratify it. This may have negative impact on exporters.

On the other hand, exports to the UK may become easier as its import regulations may be less strenuous than those of the EU. This is probably not a large benefit as our exporters in any case comply with the GlobalGAP requirements.

A lot will depend on the value of the pound; if this weakens, SA exporters will receive less in rands for their produce. The effect of this could be severe, especially if, at the same time, the rand weakens against the US dollar, as it would result in increased cost for farmers.

In addition, chances are that UK farm subsidies may increase, further distorting markets. However, after the initial uncertainty, financial markets have largely returned to stability and the real impact on South Africa and even on trade between South Africa and the UK will be small.