What’s the im­pact of Brexit on wheat mar­kets?

Prairie Post (West Edition) - - Agriculture - BY BREN­NAN TURNER Bren­nan Turner is the Pres­i­dent & CEO of Far­mLead.com

With Brexit look­ing like it’s fi­nal­ized, there is some con­cern over what’s go­ing to hap­pen with the United King­dom’s agri­cul­ture in­dus­try, namely trade flows.

Since there is no open border now be­tween the UK and EU, there are un­knowns as it re­lated to trade. Will there be tar­iffs? Will there be a new free trade deal ne­go­ti­ated?

As it stands to­day, most ex­perts in the UK agree that the milling wheat sec­tor will face more chal­lenges than malt bar­ley if there’s no trade deal ne­go­ti­ated (for the record, most of the UK’s wheat pro­duc­tion ac­tu­ally gets used up do­mes­ti­cally or shipped out as feed).

Ul­ti­mately though, there are three sce­nar­ios that may play out:

1. Free trade deal with zero tar­iffs but non-trade bar­ri­ers (i.e. Rules of Ori­gin)

2. Uni­lat­eral trade deal where UK im­ports are tar­iff­free, but ex­ports are sub­ject to taxes; and

3. Mu­tu­ally-rec­og­nized tar­iffs on both UK im­ports and ex­ports, as per WTO rules.

Specif­i­cally for sce­nario num­ber one, things get tricky when look­ing at Ire­land. Ex­plic­itly, the Repub­lic of Ire­land is part of the EU still but North­ern Ire­land is part of the UK.

Given the amount of trade be­tween the two coun­tries, as well as how much prod­uct Ire­land ac­tu­ally ex­ports to all of the UK (not just North­ern Ire­land), things can get a bit hazy.

As it stands, UK flour pro­duc­tion de­pends largely on im­ported wheat, es­pe­cially prod­uct from North Amer­ica, namely Canada.

With the trade re­la­tion­ship be­tween the EU and the UK on the rocks, it’s very pos­si­ble that we’ll see more North Amer­i­can wheat ex­ported to the UK.

How­ever, if UK flour is made with North Amer­i­can wheat, it may be tough for said UK flour to make it into the EU mar­ket with­out a tar­iff ap­plied.

Cur­rently, there are tar­iffs for grain ex­ported by the UK to the EU, but not flour, malt, or other milling products.

Un­der sce­nario num­ber two, there would be no in­cre­men­tal cost for UK millers as im­ported wheat from the EU comes in tax-free. How­ever, feed wheat costs would in­crease a bit as ex­ported prod­uct would be taxed.

Un­der sce­nario num­ber three, it’s likely that EU wheat im­ported by the UK would come with a tar­iff of 12 per met­ric tonne (or $15.40 USD per MT and 34¢ USD and 44¢ CAD per bushel). Thus, non-EU wheat like that pro­duced do­mes­ti­cally or that im­ported from a coun­try other than the EU might start to see a pre­mium.

How­ever, give the tight mar­gins in the in­dus­try, the UK’s Agri­cul­ture and Hor­ti­cul­ture De­vel­op­ment Board says that this would likely force one or two millers to close, as “there would be ma­jor over­ca­pac­ity problems across the in­dus­try.”

Fi­nally, with Brexit, UK farm­ers no longer will re­ceive EU sub­si­dies un­der the Com­mon Agri­cul­tural Pol­icy.

With­out these sub­si­dies, it’s very likely that we could see UK wheat and malt bar­ley pro­duc­tion fall as farm­ers di­ver­sify into other crops where re­turns are bet­ter/they can make money on their own.

All this in mind, it’s likely that non-EU wheat im­ports will in­crease.

And there’s some good qual­ity prod­uct avail­able in the U.S. and Canada this year, but it seems like the Canada is the coun­try find­ing the in­ter­na­tional mar­kets (or maybe is just cheaper?)

Through Week 15 of the 2018/19 crop year (end­ing Novem­ber 11), Cana­dian non-du­rum wheat ex­ports are sit­ting at a to­tal of 5.44 MMT, which, is up 23% year-over-year.

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