EU-Mercosur free-trade deal agreed but effects on agricultural goods uncertain

The EU and Mercosur – the trade bloc that includes Argentina, Brazil, Paraguay and Uruguay – announced on Friday December 6 the end of negotiations for the free-trade agreement between the blocs, but questions still linger about the potential impacts on trade flows of agricultural products.

The deal had been under negotiation for 25 years, and the announcement that a final agreement had been reached was made by European Commission president Ursula von der Leyen and by the presidents of Brazil, Luiz Inácio Lula da Silva, Argentina, Javier Milei, Uruguay, Luis Lacalle Pou, and Paraguay, Santiago Peña, during a Mercosur meeting in Montevideo.

Venezuela has been suspended from the bloc since 2016, and Bolivia is in the process of adhesion, so neither country is included in the agreement.

Most market participants heard by Fastmarkets believe the near-term effect of the agreement for South America’s agriculture and biofuel feedstock exports to Europe will be limited.

“I have not gone through the details of the agreement yet, but in principle I do not believe there will be a great increase in Brazil’s agriculture exports to Europe taking into account the resistance of Europeans to Brazilian products,” Daniele Siqueira, analyst at Brazilian consultancy Agrural, told Fastmarkets.

Siqueira said Brazil has serious problems with its global image, particularly in the environmental sphere, and added that the lack of competitiveness of European agriculture tends to push the region toward protectionist measures.

Several Argentinian sources, including analysts and brokers, said the final text of the agreement needs to be analyzed in detail but that it is still early to evaluate potential impacts and when those should be expected to kick in.

Independent analyst Javier Preciado Patiño said he is skeptical about the benefits the agreement could bring to Argentine agricultural exports, both because Europe is not the main market for most of Argentina’s products and because Europe could still use other protectionist means to block imports from South America.

Near-term impacts expected to be limited

Even considering the potential benefits the agreement can bring to Mercosur’s agricultural exports, near-term impacts are expected to be limited.

“The [agreement’s] timetable is divided into four stages unfolding in 10-years’ time. Vegoils will be included in year 7 and biodiesel in year 10, so there are no immediate impacts [in those markets],” Argentina’s oil industry chamber CIARA-CEC president Gustavo Idigoras told Fastmarkets.

The exceptions, according to Idigoras, are the soybean meal and corn markets. Soybean meal could see a zero import tariff implemented, and Mercosur will have a corn import quota of 1 million tonnes per year.

In 2023, the EU imported 3.8 million tonnes of corn from Brazil and just over 230,000 tonnes from Argentina.

The Brazilian Association of Vegetable Oil Industries (ABIOVE) said in a statement that the agreement promotes new opportunities for the domestic agroindustry and highlighted the importance of “rapid ratification” by the countries involved, so that the agreed trade preferences “can come into force as soon as possible, generating concrete benefits for production chains and expanding commercial relations between the blocs.”

Market participants in Argentina and Brazil, the main exporters of soybean meal, were still skeptical about the implementation and were waiting to see how importers would react.

Animal feed products, such as soybean meal, are already one of the main items exported by Mercosur to the EU.

Brazil and Argentina are the EU’s two main sources of soybean meal imports, having shipped a combined 13.3 million tonnes to the bloc in 2023 – 60% of EU’s total imports.

“The [Brazilian] market has not yet shown any reaction. The spot market is completely empty,” one market source in Brazil said, adding that for 2025 negotiations sellers are waiting for an increase in prices.

“There are still some bureaucratic steps left for [the free-trade deal] to be operational,” an Argentine broker said.

Brazil’s grain exporters association Anec told Fastmarkets that the trade agreement is “good news for the international export segment in general,” but for agricultural products Brazil will probably experience “more demands in the environmental area.”

In its Agriculture Fact Sheet about the agreement, the European Commission stressed that from the end of 2025, only deforestation-free products will be allowed to enter the EU market.

“This rule will also apply to imports under the EU-Mercosur partnership agreement, ensuring that products imported under this deal have not contributed to deforestation in Mercosur countries,” the Commission said.

The 1-million-tonne quota for corn and sorghum exports will mean zero tariffs once it comes into effect, but market participants are skeptical about big impacts on corn trade for Brazil and Argentina, the main producers and exporters of Mercosur.

“It’s unlikely that there will be an increase in European purchases from Brazil in the short term,” Daniele Siqueira told Fastmarkets.

In the case of Brazil, corn also has the aggravating factor of the country being less competitive in the international market.

“This year we’ve seen the EU increasing its purchases in the US, which is unusual, and reducing its purchases from Brazil. Given the increase in the domestic demand, Brazil will have to produce much more corn in the 2024/25 crop if the country wants to increase corn exports, whether to the EU or to other destinations,” Siqueira added.

Brazil’s food agency Conab pegged the country’s corn crop output at 119.8 million tonnes, up by 3.6% year on year. Meanwhile, exports are forecast at 36 million tonnes.

Domestic demand is forecast at 87 million tonnes in 2024, compared with last year’s 84.2 million tonnes.

The perception is the same in Argentina. “I really don’t think there will be a significant impact for corn. In Argentina, the focus is to start exporting to China,” Javier Preciado Patiño told Fastmarkets.

“We also have to look at the details of the agreement and see how the Europeans’ passion for imposing para-tariff rules, such as free deforestation, may play out,” the analyst said.

Animal protein

The EU-Mercosur agreement establishes a new quota for chicken meat exports of 180,000 carcass-equivalent tonnes, with zero tariffs for shipments to the EU.

This quota will be shared among Mercosur member countries over six years. After this period, the annual quota will be 180,000 tonnes.

The agreement also establishes a quota for pork of 25,000 tonnes, following the same gradual system as chicken meat over six years, with a tariff of €83 per tonne.

The agreement allows 99,000 tonnes of Mercosur beef to enter the EU market with a 7.5% tax. 55% of the quota consists of fresh or chilled meat and 45% of lower-value frozen meat.

The Mercosur agreement quota represents about 0.7% of Mercosur production, a tiny fraction of the region’s exports, according to European Commission data.

The Brazilian Animal Protein Association (ABPA) said the agreement opens up new opportunities for shipments to the European market under more favorable conditions than the existing quotas for Brazilian exports to the EU.

“The current quotas will remain in place, and the new ones established by the agreement are expected to be filled, particularly by Brazilian exports,” ABPA president Ricardo Santin said in a statement sent to Fastmarkets.

Insper Agro Global professor and coordinator Marcos Jank said the agreement is relevant for Brazil to access a very qualified market, but not in terms of volumes, since Europe represents only 15% of all Brazilian exports.

As for French farmers’ resistance to the deal, Jank said that although it includes preferential quotas for beef from Mercosur, the volumes would represent only 1.5% of the European consumer market. “Combined with other restrictions and high subsidies after ratification, it invalidates the argument of a potential ‘market flooding’ from South American meat.”

The agreement could also facilitate shipments of some Argentine agri-food products to the EU, although details of the deal should be carefully analyzed first, Javier Preciado Patiño told Fastmarkets.

“At first glance, it seems like good news for Argentine beef. However, the Argentine agri-food sector would need significant gains in competitiveness to match Brazil’s, which is better positioned,” Patiño added.

The Brazilian Agribusiness Association (ABAG) said in a statement that Brazil will contribute to meet the EU’s need for partnerships with “decarbonized and sustainable” production chains, essential to achieving emissions reduction targets.

“We will have new common agendas in the areas of new fuels and industrial process technologies, cooperating more than competing,” ABAG vice-president Ingo Plöger said in the statement.

The approval of the agreement, however, generated criticism across Europe, from biofuel producers and farmers to environmental agencies.