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If there is one lesson to be drawn from analysing the political developments of recent times in Europe and the US, it is that the unexpected is becoming almost commonplace.
Brexit & Trump | Agribusiness Intelligence
The election of Donald Trump as American president and the decision of the UK to quit the EU are among the clearest evidence of the fact that what had previously been viewed as ‘unthinkable’ is now nothing of the kind. Time-honoured political conventions and understandings are being cast aside as a spirit of restless populism takes hold. Public faith in the globalised ideals of past decades has never really recovered from the financial crash of 2007-08.

The last 12 months have seen the first year of a Trump presidency which has taken pride in tearing up the rulebook on how things should be done. They have also seen a far-right party enter a government coalition in Austria, while similar parties made strong if ultimately unsuccessful showings in elections in France and the Netherlands.

A Labour party leaning further to the left than at any point in the last 30 years made surprise advances in UK elections, and in Germany – usually a byword for political stability – it has taken more than four months following the September elections to form a government coalition.

The election of the youthful centrist Emmanuel Macron to the position of French President was perhaps a reaction against the broader populist tide, while in Canada the similarly-aligned Justin Trudeau has gained in international profile precisely because of the stark contrast between himself and Trump.

Trade disconnections for agriculture and food

Agriculture and food policies have, of course, not been immune to the broader political turmoil. There was a time, in the fairly recent past, when food and agricultural policy in Europe and the US could be reliably expected to evolve in fairly gentle, incremental steps. Reform initiatives were routinely explained to nervous stakeholders as representing “evolution, not revolution”.

But things have changed in the UK, whose 44-year-long membership of the EU is due to end in 2019. In the US, the Trump administration immediately terminated the Trans-Pacific Partnership (TPP) and has threatened to pull out of the North American Free Trade Agreement (NAFTA), which is the focus of ongoing renegotiation.

Added to this, the recent move to impose sanctions on steel and aluminium imports has already led to agri-food product being targeted for retaliatory measures, most notably from China which imports large volumes of US food and drink products.

The experience facing agriculture and agri-business in the UK and US can at best be described as ‘potentially revolutionary’.

Britain’s decision to leave the EU has created shock waves throughout the European agri-food sector. Within the UK itself, a whole new agricultural policy is being formulated, and although its parameters have yet to be defined with any accuracy, it already seems clear that there will be a fundamental move away from the principle of area payments to farmers – an approach which has been at the heart of the EU’s Common Agricultural Policy for the last quarter of a century.

But while farm subsidies are a purely domestic matter, the business of buying and selling agricultural products ties in closely with the fraught issue of Britain’s trade future relationship with its EU neighbours, and with the rest of the world.

Negotiations in 2018 will focus primarily on how closely aligned to the EU the UK wishes to remain after Brexit. Britain’s dilemma is that the closer the alignment, the smoother trade with the EU-27 will be, but the more likely it is that it will have to accept continuing regulation from Brussels.

This has major implications not only for trade in goods, but also for the food regulations which underpin Europe’s huge single market in agri-food products, and ensure frictionless trade between the UK and its neighbours. Everything from the length of time products have to wait at border controls, to the style and content of food product labelling, is potentially affected.

Brexit will also have the effect of depriving the remainder of the EU of the net budget contributions which the UK has been providing to the rest of the EU – typically around €10 billion per year.

The outline agreement reached by the UK and EU so far on the terms of the UK’s departure would allow the UK’s budgetary contributions to be retained until the end of 2020, when the EU’s current Multiannual Financial Framework (MFF) comes to an end. But from 2021 onwards, when the EU-27 will need to agree a new MFF and finance new CAP programmes from within a constrained budget, difficult decisions will have to be taken as to how to make the books balance.

Trump Farm Bill | Agribusiness IntelligenceWithdrawal and renegotiation affecting US trade

In the US, meanwhile, the abandonment of ‘business as usual’ followed rapidly on the heels of Trump’s election, notably with the decision to pull the US out of the recently-concluded TPP.

The latter has since been resuscitated by the remaining 11 parties to the accord and re-christened the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). US agricultural exporters are concerned that trade opportunities in the Pacific region could slip through their fingers, as regional markets are opened up to competitors like Australia and New Zealand.

The door remains open for the US to rejoin, and Trump has said that he would re-consider CPTPP membership if the United States could strike a “substantially better” agreement. But a definition of “substantially better” remains elusive, and, given that withdrawal from the original agreement was a clear pre-election pledge, no-one is expecting the US to change its approach any time soon.

Meanwhile, discussions on the renegotiation of NAFTA, the three-nation pact that went into effect in 1994, have made the US agri-food industry even more nervous. Withdrawal from the pact – something which Trump has consistently threatened as an option if improved terms are not forthcoming – would seriously harm US agri-food exports to Canada and Mexico, both of which are major markets.

US frustration with Canada’s heavily-protected dairy sector is one of the driving forces for the re-negotiation, and indeed this is an issue where the US’s concerns are shared by many of Canada’s other trading partners. But although US officials believe progress is being made, it remains to be seen how effective the US tactic of negotiating changes to NAFTA under threat of walking away from the whole thing ultimately proves to be.

The US agri-food sector is also wary of getting caught in the crossfire of the continuing trade tensions with China, which Trump sees as running an ‘unfair’ trade surplus with the US.

The retaliatory sanctions imposed by China – the US’s number one agricultural export market - could have a major impact, especially if they were to affect the huge US trade in soybeans further down the road (soybeans were not included in the initial list of products). However, other observers believe such an action by China is unlikely,  so attention will be focused intently on how the Asian giant responds.

Farm Bill debates ahead

On the domestic front, Congress is due to debate an update to the US’s main agricultural policy program, the Farm Bill, over the course of 2018. The House of Representatives has set itself a target of passing a bill in time to get a final bill by the end of September.

However, the relevant legislation will need to have differences between the House and Senate versions ironed out before its adoption, and, although there is little appetite in Washington for too radical change in policy direction, the process for this farm bill remains to a degree uncertain relative to finishing this year.

Lawmakers will be conscious of the sharp disagreements over funding which have already led to two (short-lived) government shutdowns since the start of January 2018. At the same time, further pressures exist in the shape of Senate and House midterm elections, which are looming in November and which could alter the balance of the currently Republican-controlled Congress.

Underpinning the US policy shifts are a major initiative on the part of the Trump administration to make government ‘smaller’ by cutting back on regulations. While the agri-food industry may be nervous about the future of trade deals, a move to slim down regulations is a popular idea for food producers.

Much has been made of the President’s initiative to cancel two regulations for every new one which is adopted, and there have been a number of initiatives in this area which affect food and agriculture. The most significant of these is the abandonment of the Waters Of The US (WOTUS) regulation, drafted by the Obama administration, which would have extended the scope of on-farm environmental restrictions.

The overall picture for the agri-food sectors of both Europe and the US is one of greater uncertainty, in the short- to medium-term, than at any point in the recent past. The disruptions unleashed by Brexit and by the new US administration have in many ways deprived business of the one thing they most crave, namely a stable trading environment and a clear pathway against which to plan future business strategies.

The need for reliable, accurate and timely insight on policy developments, and analysis of what these are likely to mean for businesses and organisations involved in agriculture and food, has never been higher.

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