Wednesday, June 29, 2016

Farm economists say Brexit may hurt by lowering global demand and strengthening the dollar

Purdue University agricultural economists say Britain’s departure from the European Union would have little affect on U.S. farmers—the U.S. exports a small portion of its products to the United Kingdom—but it could slow economic growth tied to manufacturing, reports Hoosier Ag Today. Of the $133 billion in overall U.S. agricultural exports in 2015, $1.8 billion went to the U.K.

“The indirect effects will matter the most,” ag-econ Professor Philip Abbott told Hoosier Ag Today. “The effects on agricultural trade will be through the exchange rate mechanism and through any negative business cycle effects involving global demand. How big those are depend on whether this is a temporary or longer-term situation and how long the very recent changes in exchange rates and interest rates persist.”

Ag-econ Professor Mike Boehlje said the vote "drew more attention to the issue of globalization versus nationalization—essentially open or closed markets," Hoosier Ag Today reports. Boehlje said, “Generally, agriculture is much more dependent on international trade than other parts of the economy. Globalization is important to U.S. agriculture to keep markets open to access.” He said openness also is important to agriculture for immigrant labor it needs and for sharing of innovations that promote growth, and “These are probably the more important longer-term issues. We don’t know what the answers are yet.”

Larry DeBoer, who specializes in economic development, said that "uncertainty in the markets, in part by the turmoil involving the EU, tends to lead investors to shift their money to 'safe assets' such as Treasury bonds. That appreciates the dollar, thereby making Indiana exports more expensive to foreign buyers." He said, “That means Indiana would be facing a less favorable trade environment. When the value of the dollar rises, Indiana manufacturing and employment growth stall.” (Read more)

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