What does Brazilian agriculture have to lose if the Mercosur-European Union agreement goes down the drain?

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The treaty has been negotiated for 25 years, but is resisted by French President Emmanuel Macron and European farmers. Agreement could expand the market for rural producers in Brazil. Brazil needs to advance in screening TV TEM/Reproduction Mercosur and the European Union (EU) have been negotiating, since 1999, an agreement to reduce or eliminate import and export tariffs between the two blocs, which, now, runs the risk of not being implemented, taking away the market potential for Brazilian agricultural products. 🔵In addition to Brazil, Mercosur is made up of Argentina, Paraguay, Uruguay – Venezuela was suspended in 2016. Context 👉🏾 The two parties finalized the first stage of the treaty in 2019. From this round, a text came out that has been undergoing revisions and additional demands, mainly from the European Union, which is being pressured by farmers from the bloc. In recent weeks, rural producers from France, Germany, Italy, Belgium, Poland, Romania and Lithuania have taken to the streets to protest against imports of cheaper products and rising agricultural costs. One of the most emblematic demonstrations took place in France, on Monday (29), with farmers blocking the main highways in Paris with trucks and tractors. On the same day, French President Emmanuel Macron asked the European Commission to withdraw from the treaty with Mercosur. In December last year, he had already taken a stance against the agreement, calling it “outdated” and “poorly cobbled together”. 🌾 But, on this side, what do Brazilian farmers have to lose if the treaty goes down the drain? For Safras & Market analyst Fernando Henrique Iglesias, Brazil would lose, in this context, the possibility of diversifying its trading partners and reducing its dependence on China, which imports the majority (36%) of our agricultural products. For the Brazilian Agriculture and Livestock Confederation (CNA), the answer is not so simple: rural producers consider the initial text of the agreement to be very good for Brazilian agribusiness as it provides for the reduction and/or exemption of many goods. However, three years after the first version of the treaty, the EU implemented a law that bars the import of products from deforested areas. The problem with this legislation, for the CNA, is that it does not comply with the rules of the Brazilian Forest Code, which tends to hinder trade between the two blocks (understand below). Chance to diversify exports Iglesias, from Safras, comments that the agreement with the EU would be a great opportunity for the Brazilian economy to not be so dependent on what happens in China. In 2023 alone, Chinese purchases generated US$60.2 billion for Brazilian agribusiness, with emphasis on exports of soybeans (US$39 billion) and meat (US$8 billion), data from the Ministry of Agriculture show. “We were used to the Chinese growing in double digits annually. But now, they are at a slower pace and this creates concern for the Brazilian market. It would be very important, therefore, to diversify our sources of revenue”, he says Churches. “The idea is not to stop selling to China, but rather to not put all our eggs in one basket. […] And it also doesn’t mean that Europe isn’t buying from us, but that it is buying much less than it could”, he concludes. In fact, Europe is the second largest importer of Brazilian agricultural products, after China. The bloc accounts for 13% of the sector’s exports, and makes more varied purchases. Despite soy being the flagship of sales, Brazil has a relevant export of products such as coffee, fruits and meat to Europe. In coffee farming, for example, Brazil manages to earn around US$3.7 billion per year from sales to the EU, an amount that could be higher if the country had tax exemption. Today, to export soluble coffee to Europe, for example, Brazil pays a tariff of 9%, which could be zeroed in four years, if the Mercosur-EU agreement came into force, illustrates the director of International Relations at CNA, Sueme Mori. Colombia, which is the 3rd largest coffee exporter in the world, after the Brazil and Switzerland already have, for example, zero tariffs for selling coffee to Europeans. Did Brazil miss the opportunity? Marcos Jank, coordinator of the Insper Agro Global Center, also believes that the agreement with the Europeans has the potential to expand our market, but believes that Brazil lost the chance to close this and other treaties back in the 2000s, when the world was more open to trade agreements. For him, the treaty would be positive even if it is not free trade, he said in an interview with the podcast O Assunto, this week. “From the beginning, Europe did not want to give free trade to the main products exported by Brazil, which are basically products from the soybean complex, meat, sugar. Everything was negotiated through import quotas, therefore, quantitative restrictions”, he highlighted Jank. In addition to the products he mentions, the text agreed in 2019 provides quotas for rice, honey, ethanol, cheese, powdered milk, among others. Despite these restrictions, Jank believes that the agreement would be a way for Brazil to close other partnerships. “This is what ended up happening, for example, with the countries of the Andean Community, Central America, Mexico. They managed to expand the diversity of exported products and, today, their main customers in agriculture are the USA and Europe, and ours is China. That’s because we couldn’t reach an agreement with either the United States or Europe”, he recalls. “I think the scenario has changed. When we started negotiating more than 20 years ago, it was commercial integration, what was discussed was market access”, he adds, highlighting that, currently, Europe is more protectionist, including in the environmental area. Why environmental laws can hinder agreement? The Brazilian Agriculture and Livestock Confederation (CNA) sees the environmental legislation implemented by Europe recently as an obstacle to the implementation of the Mercosur-EU agreement. This is because they do not dialogue with Brazilian environmental rules. One of the European legislations, the Anti-Deforestation Law, was instituted in December 2022, more than three years after the two blocs signed a first version of the agreement. The new law established that, from January 2025, Europe is prohibited from purchasing goods from deforested area. The rule includes products such as meat, soy, cocoa, coffee and chocolate, which come from the Amazon and part of the Cerrado. “Why is this a problem? Because Brazil has a forestry code that allows land to be opened up”, says CNA’s Director of International Relations, Sueme Mori. Currently, the Forestry Code provides that rural properties reserve a part of their land for environmental preservation, while another part can be used for agricultural and livestock production. In the case of the Amazon, for example, owners can use 20% of their land to produce, but must leave 80% for the legal reserve. In the Cerrado, the Legal Reserve Area (ARL ) is 35%. “When we negotiate a trade agreement, we negotiate access: I release my market and you release yours…of course, some protections and exceptions are established. But when the European Union enacts an anti-deforestation law after having signed a text with Mercosur, what is it doing? It is preventing us from having access to its market through internal legislation”, says Sueme. “How do you close an agreement and then change the rules?”, she asks. According to the director, it was the case that the EU had considered the specificities of the environmental legislation of each country in the South American bloc. “The CNA is in favor of the agreement as long as it guarantees real access for Brazilian agricultural products on the European market”, concludes Sueme. Traceability of Brazilian meat Jank agrees that the new European anti-deforestation law could impede the agreement, mainly in the beef trade. “Today, we can track [a carne] of the final producer, that is, the one who delivers cattle to the slaughterhouses. Full traceability already exists in this area. But we still can’t trace the first product: the calf, the lean cattle, the fat cattle”, he explains. The traceability issue that Jank refers to is in the indirect suppliers: farms in an irregular situation that produce calves or lean cattle for sell to breeders who are up to date with the law. Fernando Henrique Iglesias, who is a meat market analyst, is more positive in relation to this issue. He says that large Brazilian slaughterhouses are making heavy investments in tracking technologies for indirect suppliers . “I believe that, over the course of this decade, Brazil should make good progress in animal traceability”, he says. France pressures the European Union to end trade agreement negotiations with Mercosur Coconut water is not all the same: see which types can be sold in Brazil

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