London does not shy away from hard Brexit

The British government plans to unilaterally terminate fisheries agreements with a number of European member states. This indicates that the British are still clinging to a hard Brexit. What does this mean for agriculture?

Recently, talks about the separation of the European Union (EU) and the United Kingdom (UK) have started. It was almost certain that those conversations would go on anything but smoothly. Brussels does not want the UK to be separated while retaining silverware, read free and unfettered access to the internal market without paying for the obligations already entered into. This is for fear that some other EU countries would also leave the Union. After all, you can keep all the nice things associated with the EU and you can drop what you don't like.

The UK, on ​​the other hand, has made it clear that it wants to play the game hard. If we can't work it out, we won't have any conversations at all and we'll just split up without an agreement, London said several times.

Chance of hard Brexit high
The chance of a so-called hard Brexit, namely a British departure from the EU without retaining unimpeded access to the lucrative internal EU market, is therefore high. Still, there was always room for hope that the soup wouldn't be eaten so hot and that the two sides would still part ways amicably. However, a British plan, unveiled last weekend, is shattering those hopes.  

Decide for yourself
London is planning to unilaterally cancel the fisheries agreement that the country has with some EU countries. The treaty, signed in 1964, gives fishermen from various countries, including the Netherlands, the right to fish in waters between six and twelve nautical miles from the British coast.

According to Michael Gove, UK Environment Secretary, canceling it is a first step in gaining control over one's own territorial waters. The minister called it 'a step', indicating that more similar measures will follow. He added, almost triumphantly, that for the first time in more than XNUMX years, the UK would be able to decide for itself who is allowed to fish in British waters.

That last addition is also important, because we can see it as a representation of the British government's view of the divorce. If deciding who is allowed to fish in British waters is so important to London, it will also apply to, for example, immigration (deciding who is allowed to live and work in the UK) or trade, more specifically the import of agricultural products.

Agriculture too?
In this respect, last weekend's British decision is not only relevant for Dutch fishermen, but also for other groups, such as Dutch agricultural entrepreneurs, more specifically those entrepreneurs who sell their goods to the British. The same minister also said that the decision to cancel the fisheries agreement will lead to, among other things, a better competitive position and more profitability. It is not difficult to apply the same reasoning to agricultural products.

Price drop 
The consequences for the Dutch agricultural exporter can also be indirect. In the event of a hard Brexit, there is a chance that the British pound will weaken further, at least initially, which would make Dutch agricultural products considerably more expensive for the British, with all the consequences for demand for them. Unless, of course, the Dutch exporter lowers the price, which in turn would reduce its profit. 

Edin Mujagic

Edin Mujagic is a macro-economist and chief economist at OHV Asset Management. He focuses on global central banks, and in his blogs he mainly writes about the ECB and Fed. He has also written several books.

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