How will Brexit affect farming in Vietnam?

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The EU has been an important consumption market for Vietnam agribusiness for decades.

Does the UK referendum and vote to leave the EU present disaster or opportunity in the short- and long-term?

The nation’s ag exports to the UK struck US$703 million last year and US$308 million during the first five months of this year, demonstrating that Vietnam smallholder farmers are truly dependent on these sales for their survival.

In the early months of the year, key agricultural exports to the UK market were cashew nuts, coffee, wood and seafood, which enjoyed growth of 39.69%, 14.86%, 9.68% and 8.64%, respectively.

What matters most to smallholders and other ag related businesses in the short term is being able to keep their doors open and stay in business, says Do Ha Nam, vice president of the Vietnam Coffee and Cocoa Association.

Coffee prices plummet

"For now, the immediate economic consequence of Brexit is a sharp devaluation of the pound putting downward pressure on dong yields,” says Mr Nam.

Shortly after receiving the verdict that Britain had opted to exit the EU, many overseas importers stopped buying coffee in what can best be described as a wait and see game to judge the global market’s response.

Not surprisingly, says Mr Nam, from June 25 to July 2, the price of coffee on the world commodity markets took a nose pe, freefalling US$50 per metric ton within the first week.

Since June 24, the British Pound, he says, has lost more than 10% of its value, the Euro 1.5% whilst the US dollar has risen 2.4%.

"These moves aren’t necessarily catastrophic for coffee provided they are short-lived,” says Mr Nam, but they nonetheless are most certainly huge losses and we are working hard in concert with the government to take action to minimize losses for the Vietnamese farmer.

Wood and timber

The Ministry of Agriculture and Rural Development in turn reports that the EU was the fourth largest consumer of Vietnam wood and timber last year – trailing the US, Japan and China in descending order of magnitude.

Within the EU, the UK was the biggest customer, purchasing an estimated US$287 million of wood and timber in 2015 and another US$136 million during the first five months of this year.

During the early months of the year, total wood and timber exports of Vietnam  tipped US$3.17 billion, roughly equivalent to sales for the same corresponding five-month period in 2015.

So it is fundamentally clear that Britain is a vitally important market for Vietnam smallholders, says Nguyen Ton Quyen, secretary general of the Vietnam Timber and Forest Product Association.

“It's absolutely essential to maintain market stability,” says Mr Quyen.

"The UK referendum result to exit the EU will cause much short term turmoil and upheaval in the wood and timber segment of the economy resulting from currency value fluctuations.”

Mr Quyen points out that annually Britain procures around US$100 million of wood products from the country.

He forecasts that shipments to the UK would drop around 5-7% on the back of Brexit largely as a result of the effects of exchange rates between the Pound, Euro and US dollar.

Mr Quyen forecasts wood and timber product exports to strike around US$7.4 billion this year, a full US$200 million lower than the set target, which is a devastating blow to the industry.

Seafood exports

The British market was also the biggest importer of Vietnam seafood.

Secretary General Truong Dinh Hoe of VASEP says he does not believe Brexit will have much of an impact on the volume of exports over the long term although he fully expects short-term currency valuations to negatively take a toll on exports.The British market was also the biggest importer of Vietnam seafood out of all 28 member nations in the EU in 2015 with total exports tallying in at roughly US$200 million, says the Vietnam Association of Seafood Exporters and Producers (VASEP).

Secretary General Hoe said he was under the impression that it would take at least two years for Britain to complete all procedures necessary to effect its porce from the EU and during that timeframe demand would remain relatively unaffected.

Brexit to make no impact on Vietnam-EU FTA: ambassador The roadmap to realize free trade between Vietnam and the European Union is unaffected by Britain’s vote ...

He says he understands Brexit will result in much speculation as to what the future holds for Vietnamese seafood, but there is no reason at this time to believe it will have any lasting long-term effects.