Impact of Brexit on major agro commodities

With inputs from Aditi Vijay, Revathi Udayashankar and Govindarajan Parthasarathy 

 

Impact of Brexit on Sugar and Sweeteners Market

EU Quota System for Sugar and Isoglucose (HFCS)

Potential Impact -- The quota system for sugar and isoglucose production imposed by the EU may no longer apply to Britain.

Likely scenarios -- Two scenarios could prevail in the wake of Brexit – the UK could either retain the quota system in 2017, or choose to follow the EU policy and abolish it.

Future Outlook -- Britain, as of now, is thought to favor the EU stance of abolishing quotas and therefore this position is not likely to change upon Brexit.

Overall Impact -- High

Trade and Import Dependency

Potential Impact -- The UK imports almost all of its beet sugar from EU states, whereas the latter accounts for only about 7.6% of cane  sugar imports. EU’s Tariff Rate Quota may be removed and import of sugar into UK can increase.

Likely scenarios -- Trade agreements between UK and leading sugar exporters could lead to lowering of trade protection of sugar imports.

Future Outlook -- Sugar import from non-EU countries can increase if UK comes out of the present EU production quota system.

Overall Impact -- Medium

Supplier base

Potential Impact -- Tate & Lyle, the largest EU cane sugar refiner, is the major supplier in the industry to be affected by Brexit.

Likely scenarios -- Owing to cost of  imported raw material from non-EU nations, Tate & Lyle  has progressively decreased the number of refineries. Favorable post-Brexit trade regulations could reduce input cost.

Future Outlook -- UK government  could  support cane sugar production. This could help Tate & Lyle to reduce costs and effectively compete with beet sugar and isoglucose producers in the market.

Overall Impact -- High

Price movements

Potential Impact -- The UK favors abolishment of quotas for Isoglucose and Beet Sugar. This can take 2 years pending negotiations with the EU. 

Likely scenarios -- Prices of sugar and isoglucose could decrease upon abolishment of quota.

Overall Impact -- Medium

Impact of Brexit on Cereals and Hops

Corn Dependency on EU

Potential Impact -- UK imports 60% from EU – France (~40%), Romania  (10-12%) and Ireland (7-8%). Currently, import tariff is zero for UK. Brexit could lead to increased corn price in UK.

Likely scenarios -- Corn is an important feed ingredient and EU itself is a net importer; duties could be levied  by France and Romania on UK.

Future Outlook -- Dependency on France for corn is high and this could make corn imports costlier for UK. Ukraine and Argentina could be the next possible sourcing destinations for UK.

Overall Impact -- High

Barley Exports from UK

Potential Impact -- UK is a net exporter of Barley. It exports about 20-25% of its production and of which 70% is to EU. New trade partners could come on-board for UK. Prices may also fall.

Likely scenarios -- UK is working out a trade agreement with China to export barley. If this takes shape, exports will get diverted to China.

Future Outlook -- Currently France is the major exporter of barley to China market. UK will have to compete with France for China market and prices could witness a decline.

Overall Impact -- Medium

Wheat Imports

Potential Impact -- Wheat consumption in UK is high and there is about 1.8-2.3 MMT of imports even with huge annual production (14-15 MMT approx.).

Likely scenarios -- Nearly 75%  of the imports are from EU with zero-tariff rate. However, prices could go up if tariffs are imposed in the new trade deal. 

Future Outlook -- UK could explore importing wheat from Canada.

Overall Impact -- Low

Hops dependency on Germany

Potential Impact -- Hop acreage has declined in UK over the past few years. Its domestic production is very low. Nearly 40% imports are from U.S. and Germany.

Likely scenarios -- There could be supply shortage or rise in prices of hops in UK for brewers. Dependency on U.S. will increase if tariffs are imposed on German supply.

Future Outlook -- The cost to procure hops could increase for UK brewers. This might lead to an increase in beer prices.

Overall Impact -- Medium