Under the deal secured by Theresa May, trade will continue unchanged during the transition period of almost two years, with a possible extension for another two years.
“The current draft deal can be characterized as an orderly Brexit aimed at a managed and gradual exit of the UK out of the EU, while minimizing the economic damage on both sides,” said Rabobank.
We look at the analysis contained in the industry note in relation to the impact of the UK withdrawal from the EU on grains and oilseed trade in the longer term.
The grains and oilseeds sector will be little impacted in the short term by the Brexit deal as it stands now, said Rabobank. Trade between the EU and the UK can continue as usual during the transition period, said the team.
In the longer term, however, Rabobank sees three potential changes when the UK enters into preferential trade agreements with third countries and no longer pursues European policies.
Soybean meal and oil imports into the UK
Firstly, it noted that the UK imports significant volumes of soymeal and soy oils, in value terms around £816m (US $1,038m) per annum. The Netherlands is the largest exporter, representing almost 40% of this trade flow, with the soy products sourced mainly in North and South America and shipped to Dutch ports, partly crushed or directly re-exported to the UK.
“In the longer run, these trade flows may be redirected from third countries directly to the UK, but logistical setups will probably prevent this except if the UK imposes duties that put goods from the EU at a disadvantage. In that case, some substitution with other meals and oils may also take place, for example rapeseed and sunflower from Canada, Australia and/or the Black Sea region.”
Then, Dutch and other European crushers may need to redirect part of their production to other destinations, said Rabobank.
Second, the UK grains complex imports significant volumes of milling wheat, mainly from France and Germany, and corn from France, for an amount of £780m.
“In the longer run, part of this trade flow could be replaced by grains from other origins such as the Black Sea region, Canada and/or Australia, but that would also probably follow only if the UK were to put measures in place that would put grains from the EU at a disadvantage compared to other origins.
“In addition, UK grains exports can also be negatively impacted, as they might become subject to the import duties and quotas the EU already has in place for third country imports.”
UK feed grain exports
Currently, the UK exports around £570m of feed grains to the EU – around 8% of its wheat and barley production. The loss of those exports flows would pressure UK grain prices and cut production, said the analysts.
In relation to the UK processing of 1.2m tons of grains into ethanol as part of the EU biofuel policy that requires blending of biofuel into normal fuels, Rabobank said this volume could decline significantly if the UK government does not set up a domestic biofuel policy that provides incentives to the UK biofuel industry after Brexit.
“A lack of domestic policy would mean significant additional volumes of grain will become available for the UK feed industry or will need to be exported, which potentially further suppresses local grains prices.”