Mercosur deal passed, these are the consequences in the market

Countries like France, Ireland, Italy, Hungary, and Romania feared the consequences for agriculture and rural viability and therefore voted against. For the agreement to be approved, at least 15 of the 27 member states had to agree to its terms. Ultimately, 21 of the member states agreed. Italy's vote was particularly important, as at least 65% of EU citizens must be positively represented in the decision. While Italy was still in the "no" camp in December due to doubts about the consequences for the agricultural sector, the Italian cabinet, led by Prime Minister Meloni, has now changed its mind.

Fear for beef and poultry, corn and sugar
Representatives from the agricultural sectors in the countries that voted against the agreement fear increased and unfair competition, especially for farmers. For example, the beef quota will be expanded by 99.000 tons of slaughter weight at a low tariff of 7,5%. This is in addition to the current quota of 68.000 tons (equivalent slaughter weight) that can soon be imported into the EU at a 0% tariff (currently 20%).

For poultry meat, the additional volume is 180.000 tons of poultry meat at a 0% tariff. This is in addition to the existing volume of approximately 407.000 tons (carcase weight equivalent). For sugar, the current volume that can be imported at a reduced tariff is approximately 314.000 tons. This tariff will be eliminated for the first 180.000 tons imported from Brazil, and will soon be able to enter the EU duty-free. In addition, a new additional tariff-free quota of 10.000 tons will be created for Paraguay.

Volumes in relation to production
The European Commission indicates that the volumes are relatively small compared to the actual production volumes of the products in question. This should limit the market impact. However, additional volumes during periods of existing price pressure can increase pressure and reduce margins, according to advocates from various sectors in different countries. For example, the sugar industry has been struggling with declining consumption figures for years, and acreage is being reduced. They also point to the high production standards expected of farmers in the European Union. Imported products must meet at least the same requirements, and the guarantees must be watertight, as negotiated. 

Although advocates in the primary poultry sector have been protesting the agreement for years, other voices are also being heard further down the chain. For example, it's been argued that the EU simply relies on imports to meet the entire demand for chicken fillets. Moreover, prices have been very high in recent years, which is ultimately not in the consumer's best interest. Some additional supply could actually alleviate some of the pressure in that area. The dairy sector is also pleased and sees potential for more exports in Southern Europe. 

Commitments for green light
To secure the green light for the deal, the European Commission made additional commitments this week to Italian Agriculture Minister Lollobrigida to secure his country's support. Starting in 2028, a substantial €45 billion extra budget will be allocated to support European agriculture. A €6 billion financial package has also been set aside in case the deal leads to price drops and disruptions in some sectors. This should curb market volatility.

A kind of handbrake will be introduced to address this, which can be applied in the event of sharp increases in the import volume of certain agricultural products (increases of more than 8%) or price drops (price drops of more than 8%) compared to three-year averages, European Trade Commissioner Maros Sefcovic announced Wednesday. Mercosur has not yet received a definitive green light; the European Parliament can still delay or block its implementation. This seems unlikely, given the current support from the member states.