What will 'Brexit' mean for the horticultural sector?01 June 2016
Strong decrease in oil prices, declining economic growth and the potential departure of the UK from Europe ('Brexit'). Macro-economic developments can have a direct effect on the horticultural sector. But what effect exactly?
The International Monetary Fund (IMF) analyses the state of the global economy twice a year, and publishes its findings in the Global Financial Stability Report. In the April edition of 2016, the IMF mentions these developments among the factors to take into account:
• Decline in economic growth (3.2% instead of 3.4%)
• Dropping prices for raw materials
• Slowing growth of the Chinese market
• Agitation about the possibility of Brexit
What does the horticultural sector notice of these developments?
Persistent drop in oil prices
It is commonly accepted that a lower oil price leads to an increase in economic growth. Transport costs are cheaper, which the export sector profits from, including the horticultural sector. But the persistent drop of the oil price in the past year has had a slowing effect on the economy. Large energy companies like Shell and BP have to deal with enormous disinvestments. Unemployment rises and liquidity declines. That in turn leads to more uncertainty and instability in the financial markets. This instability is expected to persist as long as the oil price remains under $60 per barrel (it is currently about $43).
If the UK leaves the European Union, the potential consequences for the economy and the horticultural sector are far-reaching. A Brexit not only brings uncertainty about the trade policy, it will probably involve additional customs duties, delays in time to market and a drop in the value of the pound. A cheaper pound means more expensive flowers and plants from the Netherlands and thus a decrease in sales to the UK.
Uncertainty about China
China is a very interesting growth market for the horticultural sector. If the consumer spending per capita in China were to resemble the growth markets of Mexico, Brazil or Argentina, then the Chinese consumer market for plants and flowers would be worth €16.5 billion. The current value is €5.5 billion. But the corporate sector in China is under pressure from overcapacity, lower profits and increasing debt. The slowing growth in China can hold back the global economy, which would have negative consequences for the horticultural sector worldwide.
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