UK - In the wake of the result of the EU referendum last Thursday, what are the short-term consequences for the UK pork sector?
Though this decision will have widespread effects on the meat industry in the long term, much will depend on the terms of the UK’s exit. Full details will be unclear until negotiations are concluded. In the meantime, the UK will remain a part of the EU and will continue to be bound by the existing conditions of our membership.
Once the result of the referendum was clear, one of the first effects was seen in UK currency. The value of the pound fell sharply against other currencies during the day after the result. Further falls were seen at the beginning of this week, as uncertainties continued. As of 29 June, £1 bought €1.21, down 10 cents since immediately before the referendum result and the lowest level in over two years. Against the US dollar, the pound hit its lowest level since 1985, at £1 = $1.32.
Analysis published last year shows that the UK pig price is closely related to the exchange rate between the pound and the euro. This is due to the fact that approximately 60% of pig meat consumed in the UK is imported, mostly from the Eurozone, and UK product has to compete. The decline in the value of the pound will have made product from the EU less competitive on the UK market. For example, at last Thursday’s exchange rate the latest EU average reference price was equivalent to around 116p/kg; at this week’s rate, it equates to about 125p/kg.
The UK’s trade relationship with the EU will remain as it was before the referendum until the terms of the UK’s exit from the EU are agreed over the next two years. As a result, free trade with our largest market can be expected in the short term but a weaker currency may limit imports by making UK products more competitive. Currency shifts also affect exports from the UK, with the weaker pound making them more price competitive on all export markets.
However, it is not only meat imports that will be impacted in the short term, many inputs, such as fuel, feed and fertiliser, may also be more expensive in sterling terms.
Although important, currency is only a single area within a range of market drivers, and underlying factors, such as supply and demand, will continue to move markets for both outputs and inputs. It will also be important to track the impact of economic and political uncertainty on consumer behaviour and demand. AHDB will continue to deliver more information and analysis on the evolving situation which will impact the pork industry in the coming months and years.
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