While Britain’s decision to exit the European Union is expected to create difficulties for farmers, agricultural trade and investments in the region, it isn’t expected to have a significant impact on the global food system.
“I think there will be a ripple (but) it will barely make a dent in the global food system,” said Mike Dwyer, chief economist for the U.S. Feed and Grains Council and former economist with USDA’s Foreign Agricultural Service.
“I’m not saying there won’t be some fallout in Europe. I’m saying when you diffuse that across a huge global food system, I don’t think this — in and of itself — will be a big deal, he said during a forum hosted and streamed live by the Farm Foundation on July 13.
His forecast, however, comes with one major caveat — that other EU countries don’t follow suit, he said.
The main impact is the long-term effect Brexit has on currency, he said.
All the chaos seen in equity, bond, commodity and foreign exchange markets following the surprising Brexit vote was a repricing of assets for an unexpected outcome, he said.
Deutsche Bank changed its forecast for 2.1 percent economic growth in Britain to 0.9 percent after the vote and its forecast for economic growth in the EU to drop from 1.5 percent to 1.1 percent.
European growth was anemic to start with, he said, adding that it’s a little more anemic now but not falling off the cliff.
In the bigger picture, the expected 3.6 percent economic growth rate in the global GDP was only decreased slightly to 3.4 percent, he said.
“This is not enough to cause anything like what happened in 2008-2009 when the global economy tanked in a very rapid fashion,” he said.
The effect would get more pronounced if it isn’t isolated to Britain. If what happens in Europe starts morphing through emerging markets, affecting trade linkages, it could become a global problem, he said.
“I just don’t see that happening,” he said.
“What happens in a place like China will absolutely affect the global food system. So that should keep you awake at night, not what happened in Europe,” he said.
If Brexit accelerates the growth rate of the U.S. dollar even further than expected, that will be a problem for the U.S. in some markets. But in terms of currency realignment verses economic growth impact, it is the demand side that is far more important than the realignment of currency,” he said.
“This event, as bad as it is and as scary as it is for the Europeans themselves, poses no real risks in my opinion for the global food system,” he said.
But there are other factors of the divorce that could have a wider effect on agricultural trade.
The European Union drives legislation, policy and trade negotiations with other countries.
While Britain will remain a full EU member until after the withdrawal process is complete, there are already signs the UK is losing influence, said Benno van der Laan, a consultant with Greenhouse Communications with detailed knowledge of European policies affecting ag commodities and food.
“Traditionally, the UK votes in favor for free markets, for new technology, for science-based decision-making,” he said.
The UK voice will be lost entirely once the process is complete. That could have an impact on EU market access issues, such as new biotech approvals for import, authorization of crop protection products and import tolerances, he said.