News, events and analyses related to global trade and snippets of changing trade matrix during the month of June 2016.
Brexit
In a historic referendum held on June 23, 2016 in United Kingdom (UK), 51.9% of the British voters decided to exit the 28-member European Union (EU). Over 33 million people from England, Wales, Northern Ireland, Scotland, and Gibraltar took part in voting. Brexit really happened!
UK’s decision to leave EU naturally sent shockwaves amongst the global community. Within hours after the announcement, Prime Minister David Cameron announced his resignation, which triggered a Conservative leadership contest. Cameron stated, “I don’t think it would be right for me to try to be the captain that steers our country to its next destination.”
As experts had anticipated, FTSE 100 crashed, which wiped off around £124 billion off the value of UK’s 100 largest listed companies. The sterling dropped by 9%, making it the biggest single-day decline in record – also European stocks at FTSE slipped by 7%, their worst day since 2008. Kit Juckes, a strategist at Societe Generale, tweeted, “Day after day, we looked up and worried that the sky might fall on our heads. And then one day… it did.”
The vote to leave EU even left some leaders of the ‘Leave’ movement stunned. Boris Johnson, the next potential leader of the Conservative Party said, “There is no need for haste or to invoke Article 50. This does not mean that UK will be any less European, and we cannot turn our backs on Europe, we are part of Europe.” How EU leaders respond to this line of thought remains to be seen.
Many in EU fear that UK’s exit could prompt other members to weigh their membership too. “There is no point beating about the bush: today is a watershed for Europe, it is a watershed for the European unification process,” said German Chancellor Angela Merkel. Sending a veiled warning to United Kingdom she added “Anyone wishing to leave this family cannot expect to lose all the obligations but keep the privileges.”
Well, the ramifications for UK are huge. Some believe the Brexit could mark the beginning of the end of the United Kingdom as we know it. About 62% of Scotland voted in favour of UK staying with EU. Nicola Sturgeon, the First Minister of Scotland, commented, “A second independence referendum will likely happen.” Northern Ireland also spoke of parting away from UK and staying close with EU.
While the aftershocks are still being felt in the stock markets across the globe, it remains to be seen how soon UK can turn the tide in its favour by quickly signing treaties with major trading partners like US to mitigate the lack of free trade with EU countries. However, the signs emanating from US have been more diplomatic than enthusiastic. Meanwhile all we can do is hope that economists who were in favour of Brexit were right, and UK rises from the ashes like the proverbial Phoenix.
Canada-US
Diafiltered Milk
Of late, several dairy farms in US, particularly those close to the Canadian border, have started exporting diafiltered milk to Canada. The product’s lower cost and a high concentration of protein, about 85%, and very little of the fat and lactose that make up natural milk, is making it a popular and preferred choice over milk among Canadian food processors. However, attractive as it sounds, the product is giving Canadian milk producers a run for their money, for the Canadian government allows ‘duty-free’ imports of the compound! Maurice Doyon, Professor of Agricultural Economics at Laval University (Quebec), estimates that Canadian dairy farmers lose about $168 million per year from food processors that are buying diafiltered milk from US suppliers. The farmers are taking this up very seriously, protesting against this in Ontario and Quebec where Canada’s dairy production is concentrated.
France
Rapeseed exports
It is not always that a cloud has a silver lining! Due to torrential rains and insect infestations, the French plains, which form a substantial part of Europe’s grain belt, may register a drop in rapeseed production to an estimated 5.09 million metric tonne (MMT) in 2016. This means the rapeseed production would be about 3.7% lower than the last year, and it would be the smallest crop since 2013.
It’s worth noting that France is one of the biggest producers of rapeseed and rapeseed oil in Europe alongside Germany, Poland and Czech Republic. Not to say, a fall in production has also impacted the product’s exports from the country – export of the two products from France has been continuously falling after reaching a peak of $834 million in CY2011. In CY2015, France exported just $229 million worth of the product. Meanwhile, interestingly Germany’s exports of the product have increased from $672 million in CY2011 to $809 in CY2015. And why not? They do say, “One man’s meat is another man’s poison,” don’t they?
China
Ford in China
Despite Ford’s luxury brand Lincoln’s global sales being less than 5% of its total sales, the brand seems to have caught the fancy of the Chinese. It sold around 11,600 units in its first year (i.e. CY 2015) in China. Now, Ford has apparently fixed its eyes on China. The automobile maker is in talks with Chinese Changan Automobile Group, to produce its Lincoln luxury vehicle in China – its manufacturing base could be Chongqing.
Though nothing has been finalised yet, if all goes well, the production could begin in as early as CY2018. Ford is targeting sales of 300,000 units in China by 2020. Encouragingly, Ford’s pre-tax profit in the Asia-Pacific region rose by 29% to about $765 million last year. In fact, as of Q1 FY2016, Ford’s earnings in the region had doubled to $220 million from the same period last year, and its Chinese market share rose to 4.5% from 4.3%.
Also, manufacturing in China will help Ford mitigate up to 25% of import duty and logistics-related costs. That will help Ford reduce prices and improve profitability. If Lincoln finds a firm base in China, it would join the ranks of General Motors’ Cadillac and Nissan Motor’s Infiniti – a few luxury nameplates that are being made in China.
China-GERMANY
Takeover bid for Kuka AG
It looks like besides having the largest human population, China also wants to win the distinction of having the largest robot population! International Federation of Robotics (IFR) reports that China has become the fastest growing and largest robotics market in the world. China purchased about 57,096 industrial robots in 2014, and the number has increased to 66,000 units in 2015. Interestingly, the number seems small when one considers robot density worldwide. While the average global robot density is about 66 industrial robots installed per 10,000 employees in the manufacturing industry, in China it’s only 36 per 10,000 employees. To improve this ratio, in June 2016, Chinese appliance maker Midea made a $5.2 billion takeover offer to German industrial robot maker Kuka AG. Currently, Midea indirectly owns 13.5% of Kuka’s shares.
IFR has also predicted that by 2018, about 150,000 units (about one-third of the global supply of industrial robots) will be installed in China. What’s more? Within the next three years, the robot market in China is expected to be worth $15.4 billion. Looks like Kuka AG is just a small step that China is taking towards becoming a robot nation!
Guatemala-Chile
Mango Exports
Guatemala finds a new market for its mangoes!According to the Mango Committee of the Guatemalan Association of Exporters (Agexport), a deal has been sealed with Chile wherein Guatemala can export fresh mangoes treated with hot water to the Chilean market. Agexport says it’s now gearing up to export about 452 metric tonne of fresh mangoes to Chile. Each year, Guatemala exports over 227,000 metric tonne of mangoes, with country’s biggest markets being US, Belgium, Netherlands, Honduras and Canada. “This new development will generate more employment and enhance the competitive edge of our mangoes,” says Eddy Martinez, President of the Mango Committee. It’s worth noting that Guatemala has more than 7,000 hectares devoted to the production of mangoes for export purpose. 
Italy-EU
Rice exports
Italy wants a bigger slice of the EU rice pie. And not surprisingly, the country is pushing EU to reconsider preferential and duty-free access given to LDCs. Well, not good news for countries like Cambodia and Myanmar for which some of the biggest export markets lie in Europe! The reason for this lobbying for rice is simple. Italy is the largest rice producer in Europe and the production of the crop in Italy has only been rising over the last few years. Production is expected to touch 1.5 million MT in marketing year MY2015-16 (Nov 2015-Oct 2016), an increase of 7.5% from MY2014-15. Angelo Politi, Director General of Italy’s rice research body Ente Nazionale Risi, feels that rice imports from LDCs are jeopardising the competitiveness of home-grown varieties such as Ariete, Drago, Arorio, Baldo, etc., which have been given EU quality assurance labels. The move is being closely observed by the Cambodian Rice Federation which is looking at options to raise an emergency $30 million loan to protect its rice sector, amidst a prolonged drought.
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