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Farmers could feel 'Brexit' impact

Effects on ag trade will come through exchange rate mechanism and any negative effects on business cycle involving global demand.

Britain’s departure from the European Union will have little direct effect on U.S. agricultural trade, Purdue University agricultural economists say.

Their greatest concerns are whether the current shake-up in the financial markets from Britain’s vote last week to exit the EU (known as "Brexit") is short term or longer, whether an already-strong U.S. dollar will continue to rise in value and how access to global markets might be affected.

“The indirect effects will matter the most,” said Philip Abbott, a professor of agricultural economics who researches international trade and agriculture. “The effects on agricultural trade will be through the exchange rate mechanism and through any negative business cycle effects involving global demand. How big those are depends on whether this is a temporary or longer-term situation and how long the very recent changes in exchange rates and interest rates persist.”

He pointed out that a strong dollar makes U.S. exports more expensive to the rest of the world and said a widely held belief in the agriculture industry is that trade and a weak dollar are good for U.S. agriculture.

Still, agricultural exports to the U.K. amount to a very small portion of total U.S. exports, Abbott said. In 2015, the U.S. exported $8.3 billion in corn globally but shipped only $62,000 of the crop to Britain. Of the $18.9 billion worth of soybeans the U.S. exported worldwide, $76 million of that went to Britain.

Of the $133 billion in overall U.S. agricultural exports, $1.8 billion went to the U.K. Exports of what the U.S. Department of Agriculture calls “consumer-oriented products,” including wine, nuts, fruits, vegetables, meat and dairy products, amounted to $62 billion worldwide, with $1.1 billion of it going to the U.K. Wine led in that category, with U.S. exports to Britain worth $282 million.

Britain's vote on June 23 drew more attention to the issue of globalization versus nationalization - essentially open or closed markets - Mike Boehlje, Purdue distinguished professor of agricultural economics, said. Supporters of the referendum to withdraw contend that the influence and sovereignty of Britain has suffered under the EU’s trade and economic regulations and its policies on immigration and the free movement of people within the 28 countries in the bloc. Similar issues have come up in the current U.S. presidential election campaigns.

“Generally, agriculture is much more dependent on international trade than other parts of the economy,” Boehlje said. “Globalization is important to U.S. agriculture to keep markets open to access.”

Boehlje said openness also is important to agriculture for the immigrant labor it needs and for sharing innovations that promote growth. “These are probably the more important longer-term issues,” he said. “We don’t know what the answers are yet.”

Larry DeBoer, whose area of expertise at Purdue includes economic development, explained that uncertainty in the markets, in part by the turmoil involving the EU, tends to lead investors to shift their money to “safe assets” such as Treasury bonds. That leads to appreciation in the dollar, thereby making exports more expensive to foreign buyers and creating "a less-favorable trade environment,” he said, explaining that when the value of the dollar rises, "manufacturing and employment growth stall.”

The economists agree that the economic ramifications of an EU without Britain need time to play out.

“At any rate, we are certainly in for months of uncertainty,” DeBoer said.           

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