The Brexit vote is an incredibly important moment for Europe and the United Kingdom. As I write this the results are still not known whether the UK will leave the European Union are not. It has been an interesting backdrop to the last few weeks watching the investment funds in commodities grow more nervous with the specter of the UK leaving the European Union. As a Canadian, I didn’t quite feel that way. In 1980 and 1995, Canada almost broke up as a country in a similar referendum. The Brexit vote reminded me so much of that.
The Brexit vote is about emotions. Interestingly enough, you may have thought it was about UK leaving the European Union and gaining greater control and sovereignty. Leaving the European Union would be a very big deal because of the greater integration into the European economy. Anything going against that would be against the free-trade narrative of the last 30 years, where countries would cluster together building bigger free trade zones. The European Union was one of the richest zones, although it has been challenged over the last 18 months from the flood of refugees from war torn Syria. The leave forces in Britain prefer to put that in the rear view mirror. They have the emotional argument, Britain first.
From an emotional standpoint, that argument works. We are also seeing it in the United States, where controversial Republican presidential candidate Donald Trump is echoing a similar type argument, America first. We also have Donald Trump and Hillary Clinton, the two leading presidential nominees who are against TPP (Trans Pacific Partnership) as well as certain aspects of NAFTA. Simply put, trade agreements and continental arrangements like the European Union are great things, but sometimes when the bigger countries decide it’s not so good, things started falling apart. As Canadians, we are very used to this.
The United Kingdom may at one time have been considered a leading superpower in the world. In fact, as a Canadian we were required to take British history in grade 9 to learn about all the glorious British accomplishments. While Margaret Thatcher made sure that the British kept their currency outside the European Union, there are many now who want to take the next steps to get out completely. To some extent they hearken back to those glorious times when the sun never went down on the British Empire. It is an emotional argument, but when emotions are unleashed they become a very powerful force.
In Canada we know that because in 1995 we came within less than 1% of the vote in the Quebec referendum of losing our country. It never made any sense from an economic or even a political perspective. However, when the referendum was called all of that was thrown out of the window. It simply became a rallying cry for people who wanted independence for whatever reason. People got emotional and that is the reason the vote was so close.
So we wait on the Brexit results. From an agricultural perspective we know that the value of the US dollars is in the balance. If the UK votes to stay in the European Union, the US dollar is likely to decline. On the other hand if the leave forces win, it means so much more uncertainty and the US dollar goes up. Our commodity prices will react accordingly.
Is the apocalypse nigh? Hardly, as we know in Canada there will always be another day and it will certainly be true for the United Kingdom. They have their own problems. As hard as it is to believe Scotland independence after 300 years of being part of the UK is very real again. Brexit will only enhance those differences.
So as we look to the future things might be getting messy either way. As I write this the leave side has a 50.4% advantage against the remain forces in early returns. That kind of reminds me of 1995 when the Oui forces had the same percentage in the early going. At the end of the day, things changed and Canada was saved. However, this time around it might be different for United Kingdom and their counterparts in the European Union. As farmers, it’s just another thing, we’ll have to adjust. The currency markets will find that equilibrium level. At least we’ll have certainty post Brexit. That should be good in the long term for our agricultural commodity prices.