Brexit impacts milling and baking

by Morton Sosland
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Envisioning the likely consequences of the vote in the United Kingdom that means withdrawal from membership in the European Union in two years’ time (generally called Brexit) encourages two temptations in defining its impact on grain-based foods. After the initial shock of the 52-48% win for Leave, as opposed to Remain, came the unexpected reality of figuring out the political, regulatory and economic effects of such a move. On one side are those contending that the initial severe reaction causing markets to plunge overdid its negatives and it is likely that the change to an independent Britain will not bring significant changes for long-standing industries like milling and baking. Of course, the opposite is that milling and baking, not just in Britain, but in Europe and possibly around the world will face huge change that will make that vote particularly important.

Deciding what the effect will be suffers from the reluctance of British industries and companies to take a position ahead of the vote. This was so even though in most cases business leaders strongly favored Remain, including those cases where E.U. membership had forced or caused an unsatisfying transformation. After all, the leaders of both Conservative and Labour political parties in the U.K. favored Remain. Indeed, it is difficult to identify any sort of business or business executive who advocated Leave. This is also true across the British establishment. It is doubtful whether the collapse of the pound sterling and in stock markets changed that.

Before a comprehensive analysis is prepared of all the ramifications of the vote for the flour milling and baking industries, it is difficult to identify an industry that is likely to have been affected more than these two during the 40-plus years that the U.K. has been in the E.U. The opening of trade between Britain and Ireland on one side and with the continent of Europe on the other has seen the flow of wheat, flour and baked foods between these formerly separate countries expand substantially. Mill locations in this period have been affected by market opportunities that may have a different face in the future.

No one really knows at this stage all the change likely to occur in grain, milling or baking in either direction, making future negotiations exceptionally important. This point omits decisions that will be made affecting how an independent Britain will deal with retail regulations affecting contents, labeling and brand names.

If the complexities facing these industries are not worrying enough, attention quickly turns to the effect from agricultural programs that no longer will come from Brussels. The E.U. Common Agricultural Policy has had much to do with the wheat crop. The National Farmers’ Union, the main organization of farmers in the U.K., was outspoken in supporting Remain. Thus, the Leave victory introduces uncertainty into an economic sector facing an unfamiliar future free of rules and regulations issued by Brussels and also without its support. At this early stage it has been said that leaving the E.U. might cause a downturn in wheat production, while an immediate consequence may be an export gain.

The anti-E.U. vote in the United Kingdom came less than a fortnight before Independence Day was celebrated in America. As different as the current world is from 240 years ago, proponents of Leave votes in the U.K. often pointed to the “success” of America in winning its independence from Britain as symbolizing exactly what Britain will be able to accomplish without membership in the E.U. No one knows for sure what impact, if any, this idea had on the voting. Suffice it to say that the American government did not advocate or foresee the same outcome. Even in the early days of the Leave victory it is possible to forecast that flour milling and baking not solely in the U.K., but in many other countries may find the future greatly changed by that surprise in British voting.
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