The inside look at Brexit: what you really need to know…
Florint and Green Team Consultancy+ organized an open debate about the Brexit situation, and in particular its implications for the horticulture sector, on Thursday July 28. In case you were not present, we sum up the key conclusions of the discussions here.
Why this Brexit debate?
Simply put, the UK is dependent on Dutch flowers to supply its flower shops. The country is an important market for European exporters, particularly those in The Netherlands. About 925 million euros worth of Dutch flowers is shipped to the United Kingdom every year!
Significant trade takes place between the countries of the United Kingdom as well. A British exit from the European Union will inevitably impact all of those trade flows. Hence Brexit, directly or indirectly, affects everybody involved in the horticulture industry. Understanding its challenges and how it may change the market is therefore vital.
Vantage point #1: Great Britain
The debate had 3 main points of departure. First, the Chairman of the British Florist Association, Mr. Brian Wills-Pope, explained how the fallout from the Brexit vote appears to be limited so far. Despite significant initial panic, there were a number of factors that helped calm things down politically and economically.
Theresa May was installed, unexpectedly swiftly, as the new Prime Minister of the United Kingdom and leader of the Conservative Party, while Philip Hammond also took over from the embattled George Osborne as Chancellor. This gave the appearance of a ‘clean break’. And while the value of the pound dropped furiously following the vote, the stock market, unemployment figures and the country’s GDP were not as dismally affected. Consumer sentiment also remains reasonably high.
However, the desire for positive thinking should not eclipse the fact that a number of economic fundamentals have genuinely taken a gloomy turn. The IMF’s projections for the UK are significantly more pessimistic than a few months ago, and various cost increases related to Brexit will negatively affect florists. Tariffs loom, and will be a significant problem. And if the Pound reaches parity with the Euro, as some forecast, it will mean an exponential burden.
Additionally, the UK flower market has unique characteristics that make it unlike the other European nations. It is characterized by extreme competition between supermarkets, box flower delivery agencies, and florists. As the supermarkets have longer-standing trade deals and can weather value fluctuations better, they may well claim the simple bouquet segment more and more in the coming period. Florists will need to focus on the high-end segment, and be educated to successfully do so, the British Florist Association feels.
Vantage point #2: Europe
European flower delivery networks are already noticing a significant fall in demand from the UK region, a Euroflorist spokesperson present at the debate acknowledged. Flower traders seem to have not yet experienced a similar decline in orders. But this may be partly due to the fact that they often work on the basis of long-term contracts.
One likely consequence of Brexit is that exporters with a focus on the United Kingdom will start to reconsider their exposure. They may well, for example, reorient themselves more towards the economically up-and-coming Eastern European countries.
If and how Brexit will affect the other nation states of the EU, which are less directly tied to the UK economically, is particularly difficult to say.
Vantage point #3: The European Union
The number one issue underlying Brexit is the following: there are clear economic benefits from European integration, but obtaining them comes at the cost of giving up some sovereignty. This is an inevitable trade-off, regardless of the eventual shape of the relationship between the UK and the EU. What matters, in the end, is the content of any withdrawal agreement, which needs to be negotiated. A process that insiders indicate could well take up to 10 years.
Provided that a Brexit indeed officially takes place and article 50 of the Lisbon Treaty is invoked, the EU envisions 5 political options, explains Mr. Henk van Ginkel, official Government Representative for the VBN (the Dutch Flower Auctions Association) in Brussels. Number 1 is that the UK joins the European Economic Area, similar to Norway and Liechtenstein. This would guarantee, and require, the free movement of persons, goods, services and capital in the same way as the current EU membership does.
Alternative number 2 is that the UK just takes part in the European Free Trade Area, in the manner that Austria currently does. Version 3 foresees the UK forsaking such collective agreements in favour of individual treaties with the EU and/or key trade partners. Option number 4 is that the UK goes it alone as a member of the WTO, the World Trade Organisation, resulting in even more increased sovereignty at the cost of more regulated trade. The fifth and last scenario is a mere customs union with the EU, similar to what Turkey currently enjoys.
Aside from the exact relationship between the EU and UK, the latter’s leaving also has consequences for the typical coalitions that tend to form when the EU votes. A North/South divide has characterized European politics for a while, insiders note. With the UK out, the traditional Northern block (think: Germany, The Netherlands, Sweden, Denmark) will lose its political advantage. Coalitions, majorities and blocking minorities will not be formed as easily. Southern Europe will thereby be in a stronger position, which affects many key issues, for example related to agriculture and phytosanitary matters.
Market demand in Europe is down about 30% since the pre-crisis year 2008, and was only now finally stabilizing. The economic outlook was slowly getting better, with Eastern Europe in particular performing well. The uncertainty related to Brexit, let alone a dragged-out exit process, is something everybody could do without. It appears likely to stay with us for a while, however.
Sector participants need to be very realistic about the looming difficulties, though avoiding unnecessary pessimism. Florists in particular will, in all likelihood, be hit hard once article 50 is invoked. Being entrepreneurs, we can only keep adapting to a changing market, and look for the opportunities that are also bound to open up due to a reshuffle such as the one Brexit forces.
All sector partners, meanwhile, need to unify in demanding zero tariffs on horticulture products, everybody present at the debate agreed. Tariffs would negatively affects every single one of us, compounding the difficulties while doing no good whatsoever.