What “Brexit” could mean for New Zealand businesses

Cashmanager | 8 years ago

Last Friday the UK voted by a slim margin to leave the European Union, causing financial panic. But even after the initial panic is over, “Brexit” could have serious effects on New Zealand exports.

After a few days of massive volatility in global currency markets, the NZ dollar had stabilised and the UK pound had rebounded slightly from 30 year lows. However, the NZ dollar remained high against both the pound and the euro, and could continue to gain in the coming months.

This strengthening will put pressure on NZ exports – particularly meat and wine exports.

Fonterra has said that dairy prices shouldn’t be affected much in the short-to-medium term by the split, as only a small portion of our milk exports goes to the EU and UK. In the longer term there is the potential for prices to drop further, if the Euro remained low and European milk was correspondingly cheaper for foreign importers.

The effect of Brexit will be much more pronounced for meat exporters, as the EU is New Zealand’s most valuable market for red meat and associated products, with over $2 billion in trade last year.

The NZ Herald reported that both farmer-funded Beef and Lamb New Zealand, and the Meat Industry Association said Brexit would have major implications for the industry.

"Our sheep and beef trade to both the UK and EU are inextricably linked through quota access and both are likely to be affected," Beef and Lamb chief executive Sam McIvor said.

Last year, 90 per cent of the UK's sheep meat exports went to the EU. If the UK loses its preferential access, there will likely be oversupply in their own market, dampening demand for imports from New Zealand, Meat Industry Association chief executive Tim Ritchie said.

Winemakers will also feel the pinch, although wine imports were not governed by quotas. Britain is New Zealand’s second-largest market for wine, and the strength of the dollar against the pound will have major effects on profits.

 

Trade not going back 40 years

UKIP leader Nigel Farage apologised on Monday for the way Britain treated New Zealand producers when the UK first entered the European Common Market, which Prime Minister John Key deemed unnecessary. Key said the Government had no desire to "relitigate" past issues.

New Zealand is unlikely to look to return to the situation as it was 40 years ago, when 40 per cent of primary exports went to the UK.

The globalisation of New Zealand exports has reduced reliance on any one market and put NZ in a stronger position for trade.