What the Brexit vote means for the meat industry

As a net importer of meat—some 2 million tonnes were imported into the UK last year—the vote for the UK to leave the EU immediately raises questions for the meat industry. In this article we set out the most important points we see in the aftermath of the vote, and the issues to watch over the coming months. We also reflect on the Brexit vote as part of a longer term trend away from globalisation, and what this may mean for the global meat industry.

Brexit

There is much we don’t know about how the Brexit vote will play out, but one thing we know for certain is this: The coming months will be a period of change for the UK meat sector, bringing new areas of opportunity but also risk that are yet to be seriously contemplated.

Currency to drive change in trade in the near-term

The EU is the UK’s main meat trading partner. Over 80% of Britain’s imports came from the EU last year, with the Netherlands, Ireland, Germany and Denmark as main suppliers. Trade itself is not going to be interrupted by the Brexit vote in the near-term, although changes in the value of the British pound will affect trade.

The value of the pound fell swiftly in response to the vote outcome, and the uncertainty created by the vote is expected to place downward pressure on the pound through 2016. This means UK consumers should expect upward pressure on meat prices. Take bacon as an example. The UK imports just under half of its bacon needs, and a large share of pork imports are locally processed into bacon. All of this comes from the EU (mainly from Denmark, Germany and the Netherlands). It’s not possible to say by how much bacon prices will rise, but euro-denominated exporters will expect to be paid as before by GBP-denominated buyers.

Currency could also heighten M&A interest in the UK

It’s also possible that the devaluation of the pound could lead to increased M&A activity in the meat sector, as UK meat companies appear to offer good value to non-UK buyers. But whether this happens is subject to many considerations by potential buyers and sellers.

Currency is just one element of uncertainty

Uncertainty appears set to take centre stage in the UK economy, and meat will not be insulated from this. In addition to the currency dynamics, Britain appears set for a period of uncertainty, with the formalities of the UK leaving the EU containing many variables, a new Prime Minister to be appointed to lead Britain through this process and a community that has been divided by this vote who will look to come back together. This uncertainty will affect business and consumer confidence, with flow-through effects on investment decisions and purchasing decisions at a micro-level, and on the UK economy at a macro-level. Growth seems likely to stall, with lower consumption or down-trading placing downward pressure on prices, contrary to the currency-related upside pressure.

New trade agreements will take time

In the medium-term, the implications of the Brexit for the meat industry will depend on the trade agreements Britain strikes with its partners. While the EU is currently the most important trade partner for meat, it is possible that the UK will seek to expand competition by allowing additional imports from other exporting countries, such as Brazil and the US. Britain’s high standards around animal welfare and food safety may be a barrier to wider trade agreements, however. In general, trade agreements for food and agricultural products tend to be given a low priority in trade negotiations and are often the hardest to achieve because of phytosanitary considerations—so we shouldn’t expect change in trade any time soon.

A new investment environment?

A related consideration—and we will need to wait for the dust to settle before we have clarity on this—is how the global meat industry, including traders, input companies, technology providers and equipment suppliers, will look at investments in the UK. The expected higher costs of trading for Britain may make it a less attractive destination for investors, and they may, for example, delay or defer product registrations for a market the size of the UK.

A silver lining?

On the other hand, the much talked about reduction in regulation from Brussels might have some advantages for UK meat companies. If there is more flexibility for these companies they could start to invest in innovation and achieve productivity gains that could turn around the long-term trend of declining UK food self-sufficiency. And devaluation of the pound will increase the competitiveness of British meat exporters.

Brexit as a sign of a long-term shift away from globalisation

Our world is fast-moving and unpredictable, and this challenges many people, companies and governments. Last month, Jeff Immelt, CEO of GE, talked about the need for a ‘bold pivot’ away from a globalisation agenda, to a future where ‘companies must navigate the world on their own’. He referred to productivity growth through digitalisation, and the need for leaner, faster and decentralised organisations.

The trend away from globalisation is not yet strong, but appears to be growing. Public distrust of governments and institutions can be seen in the Brexit vote, in the rise of populism in the US Presidential campaign, and in the rise of politicians pushing isolationist views across most parts of Europe.

A trend away from globalisation—a trend to reducing free trade—is going to challenge the global meat industry. Meat is not heavily traded compared with grains and oilseeds, but the trade that does take place makes a significant difference to producers in meat exporting countries, and to consumers in importing countries. Trade will not stop, but an increase in trade barriers could make life harder for everyone in the global meat industry.

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