Much has been said about brexit-related tariffs, trade and budgets; a key question for all of us is to do with the reality of opportunities and threats to industry.
We’ve taken some time over the last month to look a little more closely at the UK Agri-business sector – specifically to do with the impact of Brexit as there could be more to it than immediately meets the eye.
Have we heard it before?
Earlier in August, Theresa May stated that a ‘Hard Brexit’ could boost the UK economy by an estimated £135bn with trade gains of £80bn annually by removing tariffs with the EU and the rest of the world. At the same time the Sterling value has crashed and is unlikely to bounce back in the near future, meaning exports are attractive.
As it is both tariff and import duty heavy, Agri-business may suffer as the balance of trade is heavily import biased and any additional tariffs are likely to increase costs. Note this isn’t just farming – specialist hauliers and users of imported labour may also suffer. The outcomes are likely to result in higher prices for consumers.
Local becomes better?
The import/export imbalance may of course introduce an opportunity for more production in the UK – importers of vegetables such as potatoes, tomatoes and onions (three of our largest imported food items) may look closer to home for alternatives, driving more innovation in the UK market.
In April 2017, it was reported that supermarkets’ move towards ditching promotions, coupled with the weakened pound following the Brexit vote, added an average of £21.31 to quarterly food bills – that could translate into changing food habits and again more local produce as an outcome.
What will the successful Agri-business firms be doing?
To be more competitive, better data management controls could help reduce the cost of business, particularly in the case of (predictable) ‘bad business’ and in response to the swell in cryptovirology. The UK is consistently ranked highest in terms of data openness (2013 – 2017) but has been subject to several high profile cyberattacks, with public and private organisations suffering more attacks in the last few years than they’ve seen in previous decades combined.
We know this is important – ReSolve is developing its own services in this area.
Better use of land and food science could completely change where and how we produce the foods we eat every day. How about the production of the world’s first cell-cultured meat – first created in 2013? Whilst being a little ‘out there’, innovations in efficient production and organic, sustainable farming may benefit if we see the government recirculate the c.£7bn of payment to the Common Agricultural Policy into the food industry, in turn attracting other investment.
Digging for soil. Hidden opportunities?
As with any economic impact, innovators will find the space to thrive – not just survive. For example, the used farm machinery market is likely to become more buoyant owing to higher costs of importing new plant and machinery, with many producers located overseas. UK farms may benefit from increased financing for production to meet domestic demand. Land and software developers, specialising in farm and forestry projects, could see an uplift in activity as they drive improved capacity and cost efficiencies.
It’s restructuring – just as we know it.
This all sounds like a familiar theme to a specialist corporate finance house like ReSolve. Businesses with opportunities to thrive or fail but with high levels of fixed assets to back expansion – if there is a good and well thought out plan that sounds like an attractive proposition.
We can see similar innovations in the property market and will be deploying our insight at many opportunity levels – our own mid-cap fund as well as seeking out more complex M&A opportunities.
The shared view seems to be that in October of this year there will be an increase in the Consumer Price Index. As Brexit implications and details gradually – very gradually – emerge, we’ll be watching this sector with the eyes of a farmer searching out the early shoots of a successful crop.