Difficult negotiations
Brexit seems to end in tears
No Brexit deal means additional border controls and import duties on everything exported to the United Kingdom (UK) from spring. The chance of a no-deal seems to have increased. What is the probability that the soup will be eaten so hot? And is a disaster for the onion exporter inevitable?
"We are at an impasse." This is how Michel Barniér, who is conducting the Brexit negotiations on behalf of the European Union (EU), described the current state of affairs. It is significant that a seasoned politician speaks such plain language. Meanwhile the clock is ticking; the deadline for finalizing the divorce is approaching.
Without a free trade agreement
Negotiations are going so smoothly that the British are now taking into account that there will be no agreements about the divorce. The British Secretary of State for International Trade recently said that London is preparing for such a scenario. The prospect of a no-deal divorce is, from an economic point of view, a nightmare scenario.
It would mean that the UK and the EU would separate without a free trade agreement. As soon as the UK leaves the European Union, that means an introduction of import tariffs and longer/new controls at the British border. The Netherlands cannot anticipate this (and/or make its own trade arrangement), because trade with countries outside the EU is a European matter.
As the United Kingdom is an important market for Dutch companies, the prospect of a no-deal is something to bring tears to the eyes. It is among others exporters of agricultural products from the polder who will clearly feel the no-deal.
Yet another setback
About 15% of all onions exported from the Netherlands do not get past the vegetable section of British supermarkets. This makes the country a very important market for Dutch onion exporters. If we look at the value, the Netherlands only sells more onions in Germany.
The sector has had to deal with quite a few setbacks in recent years, such as the closing of the Russian market (due to EU sanctions). The encouraging news is that Dutch exporters were very well able to handle that blow. Important new markets have been entered, which has helped to cushion the loss of Russia.
However, despite all the uncertainties, almost 40% more onions from the Netherlands went to the United Kingdom last year. That shows how resilient the Dutch onion sector is and how well-regarded the Dutch onions are.
The decline of the pound
Many currency experts are anticipating that the British pound will depreciate further as the exit approaches. A new decrease of 10% or more could just become a reality, making the Dutch onion more expensive for British buyers. It will be difficult to absorb such a blow for the second time. Fortunately, something can be done about it. Onion exporters can partly lower the exchange rate scenario by controlling various financial products.
What is important to remember is that the British (in terms of onion production) are not self-sufficient at all. This means that, even if the country soon falls outside the European Union, they will have to continue to import onions. Of course, it is a major disadvantage for exporters from the EU that the British pound could fall in value even further, but on the other hand, the Dutch onion has a very strong reputation. As a result, buyers are willing to pay a little more for our onions.
And then there is one more thing that should not be forgotten. Currency experts expect the pound to fall not only against the euro, but also against other currencies. This means that the price of the Dutch onion does not have to rise that much. After all, if the pound also falls against other currencies, all imported onions will become more expensive.
Together with the long trading relationship and the good reputation of the Dutch onions, even a hard Brexit does not have to be a disaster for the Dutch onion sector.
This article was recently published in 'Onion Market De Analyze 2017'. Click here to still receive the magazine.
Edin Mujagic
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