LONDON — Questions about the timing of and mechanism for the withdrawal of the United Kingdom from the European Union surged to the fore in the hours after Britain’s historic vote to leave.
Amid great uncertainty about how the post-Brexit relationship between the U.K. and Europe would take shape, the stakes were high for the food and agricultural sectors heavily reliant on free and plentiful trade between member states.
Prime Minister David Cameron, who campaigned for Britain to remain part of the E.U., announced that he would resign by October and allow his successor to oversee the exit. The decision appeared to give some breathing room for those in agricultural and other sectors concerned about the complexities of dismantling the United Kingdom’s relationship with the European Union.
In particular, Mr. Cameron said he would delay invocation of the key Article 50 of the 2007 Lisbon Treaty:
“The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period.”
Absent new arrangements going forward, World Trade Organization rules will by default apply to trade between the European Union and the United Kingdom, but the two sides are expected to try to negotiate new trade terms going forward. Specifically, continued food industry access to duty-free imports and export opportunities will depend on the sides’ ability to reach a new agreement on a timely basis.
Grower groups in the United Kingdom expressed dismay over the results. Sentiments of resignation were well captured by Glyn Roberts, president of the Farmers Union of Wales.
“The F.U.W. supported the remain campaign and was a member of Stronger In Europe, so we are naturally disappointed with the outcome,” he said. “However, as a democratic organization we fully respect the outcome of the vote, and work must now start to build a positive future for farming and the rural economy of Wales outside the E.U.”
Mr. Roberts expressed appreciation for Mr. Cameron’s decision to delay invoking Article 50 and urged the E.U. and U.K. to “agree on a sensible timetable for Brexit.”
“There is a monumental amount of work to do in terms of changing domestic arrangements and legislation, including in terms of Welsh-devolved legislation, not to mention unravelling us from the E.U. budget to which we were previously committed, negotiating trade deals and dealing with issues such as border controls,” Mr. Roberts said.
He called a rapid exit over only a couple years “the worst of all worlds.”
Most economists have warned that the Brexit would prove harmful to the British economy, and that the agricultural sector could be especially hard hit, absent major mitigating steps. In particular, there have been predictions that land prices will fall sharply in value and that many growers may be forced out of business. Industry estimates peg E.U. subsidies and environmental subsidies as responsible for about 60% of farmer income in the U.K. The Common Agricultural Policy accounts for nearly 40% of the E.U. budget, costing about €58 billion per year. Direct payments to U.K. growers totaled €3.1 billion in 2015. At question is with what the U.K. would replace these subsidies or how it would transition its growers to greater free market orientation.
Average agricultural E.U. tariffs stood at 12.2% in 2014, but variation by product group was wide. Tariffs for dairy products exceeded 42%.
Among groups watching developments with concern and considerable uncertainty was the National Association of British and Irish Flour Millers.
“Apart from the result, no-one really knows very much at this stage,” Alexander Waugh, director general of nabim, told World Grain, a sister publication of Food Business News and Milling & Baking News. “Clearly, nabim will be working hard with members and U.K. government officials to establish the implications for the milling sector, our customers and suppliers — but we don’t expect any quick answers. And in the short term, we don’t expect any material change that will affect day-to-day business — apart from stock and currency market volatility.”
Reacting to the vote, financial markets plunged. On the London Stock Exchange the FTSE 250 index on June 24 dropped 7.19%, though the index partly recovered from an intraday low down more than 12%, the British Pound Sterling tumbled 9%, to $1.3636, and the Euro slid 2.6% to 2.57. The price of oil at mid-day was down $2.21 per barrel, off 4.3% (Brent crude).
U.K. food stocks fell sharply, though generally not to the same degree as the FTSE 250. Shares of Associated British Foods fell 1.9%, Greencore Group declined 6.5%, Greggs P.L.C. dropped 14.5%, Premier Foods fell 4.9%, Sainsbury P.L.C. dropped 8% and Tesco fell 3.2%In futures trading June 24, grains and the soy complex were trading downward, but parsing out the effects of the Brexit vote was difficult. While the surging value of the U.S. dollar in connection with the referendum outcome was thought to be a factor, prices had been under pressure all week because of improving 2016 crop prospects. At mid-morning, wheat futures were 3c to 6c a bu lower, corn prices were down 4c to 5c, soybeans were down 15c to 18c, soybean meal was down about $7 a ton and soybean oil was down 45c to 50c a lb.