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Direct Brexit impacts for New Zealand’s agricultural trade relatively limited



The direct trade impacts of Brexit on New Zealand’s agricultural sector are likely to be relatively contained, Rabobank says in its June Agribusiness Monthly report released today.

The global agribusiness banking specialist says with the United Kingdom and the EU-27 nowadays only contributing a relatively small share of New Zealand food and agricultural (F&A) exports – 4.3 per cent and 8.8 per cent respectively by value – the direct trade implications of the UK’s historic decision to leave the European Union would be limited for the agricultural sector as a whole.

However, the report notes, for some sectors – particularly sheepmeat, wool, fruit and wine – the direct export exposure is more significant.

Rabobank senior analyst Marc Soccio says these sectors in particular would be exposed to any sustained negative impact Brexit had on the UK economy and household incomes, as well as price inflation due to adverse currency moves.

“These sectors, in addition to beef and dairy, are also the more significant New Zealand exports to the EU-27,” he said.

UK & EU-27* share of NZ F&A exports, 2015

 

UK

Share of value

EU-27*

Share of value

Beef

0.6%

3.5%

Sheep meat

19.6%

26.9%

Wool

6.3%

19.0%

Wine

24.8%

9.3%

Fruit & veg.

3.1%

18.2%

Dairy

0.1%

3.0%

Total F&A exports

4.3%

8.8%

*Excludes the UK. Source: Statistics NZ/Rabobank 2016

Mr Soccio said the EU, including the UK, was New Zealand’s most important export market for sheepmeat by both volume and value.  “In 2015, approximately 46 per cent of New Zealand’s sheepmeat exports by value went to the EU in total, while of this, close to 20 per cent went to the UK,” he said.

As well as being a big importer of sheepmeat, the UK is also a significant exporter of sheepmeat into the EU, tariff free, the report says.

“If this was to change, there may be more product remaining in the UK market which could result in high supplies and less demand for New Zealand sheepmeat,” Mr Soccio said.

Mr Soccio said for New Zealand’s wine sector, the UK had long been a major export market by volume, taking one-quarter of all wine volume exported by New Zealand to the world.  “While the trade terms on which New Zealand exports wine to the UK will remain unchanged in the near term, any negative shock to the UK economy or sustained devaluation of the British pound would adversely affect the affordability of wine in the UK,” he said.

For dairy, the reports says, any weakening of the euro resulting from the Brexit decision would help to stall the building of dairy inventory levels, but also place further pressure on international milk prices by increasing the international competitiveness of European dairy products.

The report says the implications of Brexit on both market access and UK food prices would need to be watched in the future.

“It remains to be seen how trade tariffs, duties and quotas may change between the UK and the EU-27 and how elimination from the Common Agriculture Policy (CAP) impacts UK food producers. Any imposition of trade barriers and reduction in producer subsidies would act to raise the cost of food sourced domestically and from the EU-27,” Mr Soccio said.

“A depressed British pound would also inflate food prices in the short term.  In the longer term, high food prices may be alleviated through free trade agreements beyond the EU.”

Looking at the broader economy, the report says volatility in financial markets naturally raises concerns over any longer-term spill over into the real economy around the world, coming at a time of heightened tension in financial markets and fragile global economic growth.

“The British pound has plunged, and the flight to safety by investors has pushed the US dollar and Japanese yen sharply higher against a large basket of currencies, including the New Zealand dollar,” Mr Soccio said. “In the near term, investor risk sentiment will remain the predominant driver of currency market movements and heightened volatility is to be expected, with some risk of increased intervention by policy makers in currency markets.


Rabobank New Zealand is a part of the international Rabobank Group, the world's leading specialist in food and agribusiness banking. The Rabobank Group has more than 115 years' experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. The Rabobank Group is structured as a cooperative and operates in 40 countries, servicing the needs of approximately 8.6 million clients worldwide through a network of more than 1000 offices and branches. Rabobank New Zealand is one of New Zealand's leading rural lenders and a significant provider of business and corporate banking and financial services to country's food and agribusiness sector. The bank has 33 branches throughout New Zealand.


Media Contacts:

David Johnston
Marketing & Media Relations Manager
Rabobank New Zealand
Phone: 04 819 2711 or 027 477 8153
Email: david.johnston@rabobank.com 

Denise Shaw
Head of Media Relations
Rabobank Australia & New Zealand
Phone: +61 2 8115 2744 or +61 439 603 525
Email: denise.shaw@rabobank.com