Dutch plant-growers don’t dig Brexit

The UK’s departure will mean orders take ‘substantially longer’ and cost more, horticulturalists predict.

DEURNE, The Netherlands — In the village of Deurne in the south of the Netherlands, Henk Raaijmakers is not looking forward to Brexit day.

“I am expecting complete chaos at the border,” said the 60-year-old owner of a large plant and tree nursery, “Brexit will be disruptive for my business and the Dutch horticultural sector as a whole.”

At his nursery, big wooden boxes filled to the brim with small blueberry plants in black plastic pots are being made ready for transport. This particular batch will go to Poland but inside the greenhouses tiny shoots of a wide variety of plants are growing until they are big enough to be shipped to the U.K.

Sweet berry honeysuckle, white beam berries, blueberries, blackberries, raspberries, goji berries: Raaijmakers’ superfood collection is enough to make any tabloid lifestyle editors’ eyes light up. His nursery is also packed with fig trees, azaleas, camelias and much more besides.

Raaijmakers’ company, which he started from scratch in 1982, consists of 2 hectares of greenhouses and 4 hectares of outdoor growing space. He exports nearly three-quarters of his total production to other countries. A quarter goes to the U.K., largely from online sales.

What all this means for gardening-mad Brits is not clear.

Normally a British customer waits three to four days for the plants to arrive. “Right now, fast delivery combined with good quality products is why the British import from the Netherlands,” said Raaijmakers, who is also vice president of the European Nurserystock Association, which represents growers across Europe.

He fears Brexit will change all that — meaning “substantially longer” waits and a significant price hike. “Forms, import fees and a longer list of phytosanitary obligations — which I think will also be used as a political tool after Brexit — will cost a lot,” said Raaijmakers. “Combined with the exchange rate of the British pound, this could mean that our products will cost up to 50 percent more.”

The business is typical of the Dutch horticultural sector as a whole, with Germany the biggest export destination and U.K. second. Growers have since October begun the production and planning process for next year. Not an easy task in the face of uncertainty, said Raaijmakers. As far as possible he will try to export plants and trees to the U.K. before Brexit day so local companies he works with can stock up. “But it is impossible to do this for online sales which is a substantial part of our business,” he added.

What all this means for gardening-mad Brits is not clear. Raaijmakers does not think the U.K. will be able to increase its domestic horticulture production. “Historically the U.K. is a garden-loving country, it is part of their culture. But production-wise it has never been able to match the demand,” he said. “About 90 percent of their shoots come from overseas. In addition, creating stricter rules for labor immigrants from Eastern Europe won’t help in scaling up the domestic production.” That will inevitably mean higher prices, he expects.

Raaijmakers intends to compensate for lost U.K. sales by branching out into new markets, but he sees wider consequences of Brexit for the sector.

“It is still sad this is happening. With Brexit, the Netherlands has lost a strong partner within the EU on innovation. Other countries, like France, are much more conservative when it comes to approving selection techniques. This could seriously put the quality of plants and trees all around Europe in danger in the long term,” he predicts.

George Freeman: There was much to cheer in the Budget. But now we need an inspiring programme for growth.

At the moment, we are treading water and appear to be relying on popular support for Brexit, and the threat of Corbyn, to keep us in office.

George Freeman MP is Chair of the Conservative Policy Forum and The Big Tent Ideas Festival, and is MP for Mid-Norfolk.

On Monday, the Chancellor announced that “austerity is coming to an end”. Politically, there was a lot to cheer in this Budget – some good news and headlines for struggling high streets, our crucial Universal Credit reform, NHS workers and the vast majority of constituents who rely on public services. Furthermore, there were many helpful retail pledges for colleagues in marginal seats. Given the Brexit divisions and infighting, we badly needed some good news.

But if we are going to end the biggest squeeze on disposable incomes since the war, the central question for our future is this: how can we get back to the 2.5-3 per cent growth that we enjoyed pre-Brexit? Before the EU Referendum, we were one of the fastest-growing economies in Europe and the G7. Now we’re one of the slowest-growing.

The Budget invites the public to judge us on different metrics – no longer on our commitment to balance the books (abandoned) or reduce the debt (still growing), but on our ability to “end austerity”. People will now need to feel tangible improvements and see how Brexit can be a catalyst for much higher growth and prosperity.

Because this Budget won’t be decided on the comment pages of broadsheets. It will be decided on the ground.  By parents chatting at the school gates. Families looking after their ageing relatives in care homes. Commuters stuck in traffic jams because the housing has come, but the infrastructure hasn’t. Or the millions standing on trains every morning who’ve shelled out £2,000 for a season ticket and feel ripped off.

I no longer advise the Prime Minister, but here’s what I’d say if I still did. We need to remind people that every public sector pound has to be earned before it is spent, and that we need a more inspiring programme of business-led growth to drive prosperity and opportunity.  This means some big changes.

First, accelerating our transition from a service economy to an innovation nation.  Innovation is key to our driving up productivity, prosperity, inward investment and exports. We won’t escape debt with growth at 1.5 per cent and low productivity.  We need a renaissance of enterprise and innovation.  Such buccaneers as James Dyson and Richard Branson have done more to transform this country’s prospects than any government department ever will.  We need to stop the business-bashing and promote entrepreneurship and innovation. While the UK is still a crucible of start-up entrepreneurship, the engine is not yet humming: we have too many start-ups that are never scaled up, too little of our innovation funded by the City and too little that is taken global by British companies. We need a new national mission. We must be the innovation nation.

Second, tangible access to new markets for our innovation.We can’t just do research.  We need to innovate, manufacture and trade.  If Brexit means anything, it surely means an opportunity to go global. But that can’t mean importing cheap food and cheap clothes from sweatshops. We need to be exporting our innovation. The UK should be using every tool possible to unlock access to the fastest emerging markets in Africa and Asia.

For 40 years our whole economy has been geared to our being a European services economy. Why don’t we make Brexit the moment to embrace a new global strategy for higher growth through exporting technology and innovation into emerging markets? If the opportunity is properly seized, we could use our Industrial Strategy and public sector innovation to make Britain a crucible of new technology scale up and financing through the City.

We could then use our aid budget and global soft power in emerging markets to grow our exports and trade links with the fastest growing economies. Why don’t we offer some of the fastest emerging countries where we have a strong historic links a deeper Aid, Trade and Security Development Partnership?

Third, harnessing the public sector as a test bed of innovation. We’ll never export our innovation if we’re not using it ourselves. Innovation can’t be just about making a lucky few in the City rich beyond their wildest dreams. In order for us to be a test bed for new technology, we need to put enterprise and innovation at the heart of the public sector.  If we want to lead the world in digital health, we won’t do it unless the NHS is already a pioneer. You can have as many digital health clusters in Shoreditch as you like. But if the NHS isn’t testing and buying it, we will never become the innovation nation we need to be. Building, financing and growing these little start-ups into serious businesses of scale. The problem of the austerity era was thinking that our problems could be solved by cutting things. Actually, the only way our problems can be solved is by growing things.

Fourth, empowering local leaders to innovate more. Innovation can’t be ordered from on high. It comes from people having the power to make decisions themselves. That’s why we need to embrace bolder economic localism. Let’s remember that our national economic performance is made up of hundreds of local economies, all of which need to be growing faster. Another five years of ever-tighter spending controls from the Treasury risks undermining local growth and innovation.  Instead of delaying essential local infrastructure holding our growth hubs back, why not let them raise infrastructure bonds in the international capital markets and embrace bold ideas like integrated track and train mutuals which invests users money into better services?

Fifth, a new model of Treasury incentives. Too often, Whitehall’s funding orthodoxy rewards failure.  If you deliver more for less in the public sector we give you…less!   And give more to those failing.  If you ran a business like that it would be bust.  And depressing to work in. It’s no wonder that public sector leaders are so dispirited.  Many are leaving.  We need them to stay.  So why don’t we send a signal to encourage them, be bold and embrace a new model of incentives-based funding which rewards successful local service leaders for delivering efficiency and productivity? We need a new approach based on a radical idea: if an area reduces the deficit quicker than Whitehall’s average we should let them keep 50 per cent of the savings to re-invest.  Why not the same on growth? If councils grow their tax base, why not let them keep 50 per cent for local services?

Our choice as a nation is clear. Do we timidly manage our decline? Or do we set out a bold plan a brighter future? At the moment we are treading water and appear to be relying on popular support for Brexit, and the threat of Jeremy Corbyn, to keep us in office.

For a majority of voters, keeping Corbyn out and delivering Brexit are not good enough answers.  We need to show voters that this is the path to something more inspiring.  We need to start setting out a bold vision for Conservatism in the twenty-first century.

Why the UK economy should grow faster in the short term if there is no Brexit deal

Much of the current narrative regarding the Brexit negotiations goes something like this: “Brexit is likely to damage the economy in the short term. Even its advocates accept that. They said that even if there is a good free trade deal with the EU we should expect the economy to take a few years to […]

The post Why the UK economy should grow faster in the short term if there is no Brexit deal appeared first on BrexitCentral.

Much of the current narrative regarding the Brexit negotiations goes something like this:

“Brexit is likely to damage the economy in the short term. Even its advocates accept that. They said that even if there is a good free trade deal with the EU we should expect the economy to take a few years to adjust, sacrificing perhaps two or three percent of GDP growth in the process. Now, they hope to get that back over the medium to longer term — Gerard Lyons talked during the Referendum campaign of a ‘Nike tick’ effect. But only a small set of economists, even amongst those that favoured Brexit, denied there would be short-term losses even if we do a good free trade deal with the EU.

“Well, then, if even a deal leads to short-term losses, how much worse must it be going to be in the short-term if there is no deal? That surely must be very bad indeed! Perhaps it could be so bad that it would undermine the Conservatives’ reputation for macroeconomic management, ushering in a Corbyn government in 2022?”

I think it is fair to say that some version of this narrative is near-universal. Even those keenest on no-deal are largely arguing that although no-deal is worse than the best sort of free trade agreement, at least in the short-term, that is worth doing through some combination of political gains and not sending the EU £40-odd billion we don’t owe them.

I think everyone’s wrong here, and I want to explain to you why. A good free trade agreement (something like a Canada+ deal) would be the best outcome for the UK economy over the longer-term — indeed, I cannot believe anything other than a Canada+ type Free Trade Agreement is sustainable for more than a few years. And if we do do a Canada+ deal, then I agree with those that say they expect the short-term impacts on GDP to be negative — we’ll sacrifice 2 percent or so of GDP growth by around 2022.

So, a deal is better than no-deal over the longer-term, and a deal will mean a short-term loss of GDP growth. But where the discussion goes wrong is in assuming that no-deal means bigger losses of GDP in the short-term. What would actually happen is (after we got through the first few weeks, say one quarter, of disruption, which might well include a non-trivial dip in GDP), GDP would grow faster in the short-term (say, the following 12-18 months) than if there had been a deal. Just because no-deal is undesirable for the economy in the longer term, it does not follow that that means we make bigger short-term losses.

Let me explain why. Let’s step through some of what will happen in the economy, once we leave the EU, and compare how that plays out in the event of a deal versus no-deal. First, let’s list some of the effects there will be, as per the following table.

We can see various ways UK imports will be affected, but it should be pretty uncontroversial that increased barriers to imports from the EU post-Brexit will mean fewer imports into the UK, at least in the short-term, as more of UK demand will be met by UK firms and less by EU-based firms exporting into the UK. Over the longer term, perhaps we will do more trade deals with non-EU countries or unilaterally strip away barriers to non-EU trade, and imports will end up unchanged or even higher. But in the short-term, it’s pretty clear we should expect imports to drop. It should also be pretty clear that in the event of no-deal, we’d expect imports to drop by more than if there is a deal.

Again, it should be pretty uncontroversial that Brexit will mean fewer exports to the EU, and probably fewer exports overall in the short-term, and that the impact will be larger if there is no deal than if there is a deal.

So, fewer imports and fewer exports, in the short term. Which effect will be bigger? Well, the UK is a larger net importer from the EU. We import about €4 worth of goods and services for every €3 we export. So if barriers to exporting and importing are fairly similar (as UK policy-makers would surely ensure they would be in most areas), the expected net impact will surely be a larger drop in imports than exports. So from this source, we’d expect a short-term boost to GDP, as net imports fell and the UK’s trade deficit improved.

Next, let’s consider capital flows. There is a great deal of press discussion of UK finance firms or car manufacturers relocating some activity into the EU to avoid barriers to trade. Perhaps there will be some of that (though so far it seems to be mainly talk), but even so, that is part of that €3 of exports going out. What we do not hear about are all the EU-based firms that would relocate activities into the UK to avoid barriers. Since there are €4 of those for every €3 coming in, we should expect that more EU-based activity has an incentive to relocate into the UK than in the opposite direction.

This is not quite so unambiguous as the imports/exports effect. Some firms exporting to the UK will also export to other EU markets and may face economies of scale losses in relocating into the UK, and it is arguable that economies of scale impacts may more often tend to affect EU-based than UK-based producers’ relocation decisions. So there is some interplay between inward flows, reduced imports and domestic investment. But the difference between €4 of exports and €3 of imports is so large that we should probably expect the effect to be positive nonetheless. And we should expect net inflows to be bigger if there is no deal than otherwise.

Next, effects on consumption. These depend upon whether consumers expect the long-term impacts to be positive or negative for GDP, and the extent to which they react to that in the short term. This one is difficult to call. I would guess there would be little change in the event of a deal and a slight drop in the event of a no-deal.

Last, domestic investment. This includes firms whose investment plans have depended upon our relationship with the EU that will do less investment or even liquidate investment. It also includes firms whose plans depend upon expansions in UK or non-EU activity. I believe it is natural to imagine that, even if the net impact on domestic investment is fairly balanced over the medium term, that will consist of a drop in domestic investment initially, as EU-dependent projects are cut back or liquidated, and the capital then only later being re-allocated to new UK-based or non-EU projects.

That drop in EU-dependent domestic investment is the main reason I expect there to be slower GDP growth in the event of a deal being done. If there is a deal, I’d expect fairly modest impacts on imports and exports in the short-term, and relatively modest short-term changes to capital flows, so the drop-off in domestic investment will probably be the dominant short-term impact, meaning slower GDP growth.

But if there is no deal, these other short-term impacts will be larger. Net imports will fall much more and there will be much larger inward and outward capital flows. So if there is no deal, I would expect those effects to dominate, outweighing the drop in domestic investment in the short run.

Overall, what does that mean? It means that, even though we should expect slower GDP growth in the event of a deal, and even though a deal is better for the economy over the medium term than no deal, if there is no deal then in the short-term we should expect GDP to grow faster, not slower.

I emphasise again that this would be after the first few weeks of drop-off in GDP associated with no-deal disruption. But it would be more than simple catch-up from disruption. It is a reflection of the basic dilemma that net importing countries always face. Free trade is good for economies over the medium to long term, but if a country is a net importer then it tends to gain output, in the short-term, in protectionist scenarios with greater trade barriers. There is no good reason to believe that this long-established basic economic truth should not be expected to apply to the UK in the case of Brexit as well.

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