“Unprecedented” access to Mercosur: New trade agreement polarizes European dairy sector

09 Jul 2019 --- The European Dairy Association (EDA) has welcomed the EU-Mercosur free trade agreement, which the European Commission (EC) anticipates will lead to collective yearly savings of more than €4 billion for European export businesses. Conversely, the trade deal has sparked disapproval in other sector representatives such as the European Milk Board (EMB), who fear a surge in competitive imports of South American goods to the EU.

Under the new agreement, the European Commission (EC) states that European farmers and food businesses can expect to gain “unprecedented” access to the countries of Mercosur, which represent a large market of 260 million people. This will be achieved by:

• Removing high tariffs for main EU export products.
• Preventing imitation of EU traditional foodstuffs.
• Making food safety procedures clearer, more predictable and less cumbersome for EU exporters.

However, the EMB has hit out at the move. “We milk producers in the EU have been working for years to make the dairy sector resistant to crises and future-proof once again. The Mercosur Agreement, unfortunately, counteracts these efforts,” says EMB Vice-President Sieta van Keimpema. “Furthermore, these agricultural products, which will now come to us in Europe in even greater quantities, are different from those produced in the EU in terms of standards and production requirements. This leads to unfair competition to the detriment of EU producers. And of course, we have to wonder to what extent guaranteed conditions for EU consumers will really be respected.”

Keimpema asserts that the agreement may not only be questionable in terms of conditions set for milk producers and consumers in the EU, but also for players in the South American industry.

“The decreases in tariffs for EU milk products pose the threat of stifling milk prices for dairy farmers in the South American countries as well. While our association represents European milk producers first and foremost, we also want to ensure that the price situation for our colleagues in the Mercosur region does not deteriorate,” she stresses.

Reacting to criticism of the deal, EDA Secretary General Alexander Anton maintains that competition from the South American industry may be less of a concern. “The opening up of the Mercosur dairy markets for EU dairy excellence is mirrored by the very same market access for Mercosur dairy products to the EU,” Anton tells FoodIngredientsFirst. “Hence, between the markets – ultimately the consumer will decide on the success of the players.” 

“That will also be the case for other agri-food products, where the South American agri-food businesses seem to have some competitive advantages,” he further explains. “After all, the agri-food trade balance of the Union with all four Mercosur countries is negative. That’s why a smooth phasing in is crucial for some sectors.”

From a dairy perspective, all four countries forming the Mercosur area have a prominent dairy culture, with a self-sufficiency rate between 90 to 193 percent, as highlighted by the EDA. So far, the nations’ dairy trade has mainly taken place internally within the Mercosur region. Cheese and milk powder imports from the EU (mainly from the Netherlands, France, Italy and Germany) have not reached a significant volume. 

“Now, the issues come – as always – in the details,” elaborates Anton. “It is essential that the details of the agreement and the final implementation can secure an unhindered access for our European dairy exports, including the reduction and abolition of tariffs as well as non-tariff barriers. The adopted legal safeguards to protect over 350 high-quality European food and drink products like Fromage de Herve [Belgium] or Comté [France], from imitation in Mercosur countries will also strengthen the well-deserved high-quality reputation of all European dairy products.”

The EDA flags the agreed tariff-rate quota (TRQ) volumes of 30,000 tons of cheese, which is about ten times the quantities exported by the EU today. “It is not a secret that we would have expected higher TRQ volumes for cheeses, milk powders and infant formula, and a shorter phasing period than 10 years,” says Anton.

“This additional market access will also help to underpin the diversification of our EU dairy export destinations and hence, make the dairy sector more resilient when it comes to trade distortions. On the other hand, trade negotiations are more than complex and difficult – so far, nobody has yet succeeded in getting a deal that makes everybody happy,” he adds.

The future implementation of this new trade framework, part of a wider Association Agreement, will be ultimately beneficial for the two economies, notes a statement by the EDA. “In today’s troubled international trade arena, this is a real breakthrough that underlines the trade ambitions of the EU (‘Trade for All’) and the performance focus of the negotiation teams,” concludes Anton. “The clear commitment of the negotiation partners to the Paris Agreement (COP21) and its objectives is – in today’s world – a milestone.”

The EC classifies the Mercosur bloc as the world’s seventh largest economy and fifth largest market outside the EU with an annual GDP of €2.2 trillion.

By Benjamin Ferrer