Brexit: South African Agriculture

SA’s Agri Exports: Understanding Brexit

On the 24th of June, 2016, David Cameron announced the surprising results of the UK’s Brexit referendum – the scales were tipped towards leaving the EU, sending global markets into turmoil. The GBP dropped to a 31-year low against the USD, and USD2 trillion were wiped off global markets. The rand slipped by 8% against the USD (1,2). Beyond these initial exchange rate and market shocks, there are obviously further significant deeper social, political, and economic implications for the UK and the EU. But as the dust is settling, and the markets begin to recover, what are the potential impacts to South Africa’s future trade relations, especially those relating to agriculture?

4% of South Africa’s total exports are destined for the UK, and this comprises roughly 20% of South Africa’s total exports to the EU (3). Obviously these export figures are far more heavily weighted in some industries than others, this being particularly true for agriculture – in 2014, the UK was South Africa’s third largest export destination for agricultural products (4). Roughly 30% of South Africa’s fruit exports were destined for the UK over the 2013/2014 season. Table 1 shows the component of total exports to the UK and the EU for each major group of fruit. The story is similar for South Africa’s wine exports to the UK, where, in 2013, 25% of South Africa’s wine exports were destined to the UK (5). Obviously these percentage components will fluctuate year-to-year with commodity prices.

Brexit: South African Agriculture

Table 1: Exports to the UK and the EU, based on the 2013/2014 season

 

 

 

 

The immediate Brexit implications for South Africa’s agricultural exports relate to exchange rate fluctuations – to date, while the rand has weakened against the dollar, it has strengthened against the GBP, decreasing the competitiveness of exports. But potential longer term impacts to agricultural exports relate to trade agreements. South Africa currently exports to the UK under the recently signed EU-SADC Economic Partnership Agreement. Once the UK leaves the EU, South Africa will no longer have access to the UK market through the EU, and new trade agreements and tariffs will need to be negotiated directly with the UK, leaving room for uncertainty (6).

But these changes will only take effect once the UK actually leaves the UK, a process expected to take at least two years (7). While this requires us to have faith in SA’s negotiating powers, it is not cause for immediate concern.

 

 

References

  1. Business live. Brexit panic wipes $2 trillion off world markets – as it happened [Internet]. The Guardian. 2016 [cited 2016 Jul 11]. Available from: https://www.theguardian.com/business/live/2016/jun/24/global-markets-ftse-pound-uk-leave-eu-brexit-live-updates
  2. Potelwa X. Brexit spells bad news for SA: Rand falls most against the dollar since 2008 as UK votes to leave the EU [Internet]. Mail and Guardian. 2016 [cited 2016 Jul 11]. Available from: http://mg.co.za/article/2016-06-24-rand-falls-most-since-2008-as-uk-votes-for-brexit
  3. van Rensburg D. How Brexit may affect SA economy [Internet]. City Press. 2016 [cited 2016 Jul 11]. Available from: http://city-press.news24.com/Business/how-brexit-may-affect-sa-economy-20160626
  4. DAFF. Economic Review of the South African Agriculture. 2014.
  5. Analytix. South African Wine Exports Analysis. 2014.
  6. Mchunu S. Brexit would impact SA’s agricultural sector [Internet]. Business News. 2016 [cited 2016 Jul 11]. Available from: http://www.iol.co.za/business/news/brexit-would-impact-sas-agricultural-sector-2037069
  7. Pearson M. UK votes “Leave”: Why it will take at least 2 years to exit the EU [Internet]. CNN. [cited 2016 Jul 12]. Available from: http://edition.cnn.com/2016/06/24/europe/brexit-steps-to-leave-eu/