Trade problems faced by the food sector in Mercosur nations were highlighted again recently when Brazil erected trade barriers against dairy products from Argentina and Uruguay. This was the latest in a series of barriers imposed by Brazil in recent years which have had a detrimental effect on producers of beef, corn, wheat and other crops in Mercosur partner nations Argentina, Paraguay, and Uruguay. The food and agriculture sectors of member nations cannot live up to their potential until Mercosur is revitalised and new member nations join the block, argues Steve Lewis.
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The most recent threat from Brazil raised serious concerns within Argentina’s already depressed dairy industry. Although it now appears that a resolution will be reached through private sector price negotiations, Brazil’s ministry of development and foreign trade was in the process of imposing import taxes ranging from 10% to 45% on the dairy products of seven Argentinean companies. Industry sources in Argentina estimate that such a move would halve Argentina’s dairy exports to Brazil which amount to 140,000 tons per annum.
The tax would also apply to several of Uruguay’s important dairy producers. Even if the import tax on dairy products is averted, underlying trade friction remains. Part of Mercosur’s problems stems from the heavy dependence of Argentina, Paraguay, and Uruguay on Brazil as an export market. To regain independence, they need to follow neighbouring Chile’s example of establishing a diversified export base.
Mercosur’s inadequate infrastructure for the resolution of trade disputes has made it difficult for member nations to resolve recent impasses between Argentina and Brazil. Not only have Mercosur trade tensions proven detrimental to Argentina’s food exports, they have also hampered domestic demand by contributing to the nation’s long standing economic recession. In turn, this has led to a vicious cycle of disinvestment in the food and agricultural sectors.
Several years back, Argentina had the forethought to link its national currency with the United States dollar. In the medium to long term this should prove beneficial, but in the short term it has made it difficult for the nation’s food and agricultural exporters to improve their cost competitiveness relative to other Latin American nations with soft currencies.
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By GlobalDataArgentina urgently needs to expand foreign sales. Increasing the level of exports within Mercosur is a top priority because it will take at least two years to develop new markets in other regions.
The GM issue
Another problem area which Brazil and its Mercosur partners have yet to iron out is their stance on the importation of genetically modified (GM) crops and foods. Argentina and Brazil have taken different stances on the issue. The former is a leading producer of GM grains, whereas Brazil takes a very cautious stance toward the importation and use of these products. (for more information on GM Battle Brewing in Argentina, click here
Brazil’s GM stance has already caused major headaches to grain producers in Argentina and Paraguay. Its recent rejection of GM corn shipments from Argentina and Paraguay smacks of protectionism, yet suppliers in those nations have taken steps to comply with Brazilian importation requirements.
In spite of the fact that no globally accepted stance on GM crops has been achieved, efforts must be taken to establish a harmonised MERCOSUR position on the issue. Any such accord should take into account that it will be very difficult for Argentina to establish a two tier (GM/non-GM) export structure.
Mercosur expansion
The expansion of Mercosur should prove beneficial to exporters of food products in all member nations. Up until December 2000 the most likely next member was Chile, which currently enjoys affiliate status. Faced with the reality that Chile was intent on pushing ahead with negotiations aimed at NAFTA membership, Mercosur rescinded its membership invitation for at least a year.
This may prove to be a short sighted move given the fact that Chile was willing to continue with parallel Mercosur negotiations. Chile’s entry into Mercosur would not only give current members access to a new market, but would open up the opportunity for food producers to access numerous other nations with which Chile already enjoys free trade agreements.
Other nations that might join Mercosur in the medium term are Bolivia and Mexico. Mexico has made repeated trade overtures to Mercosur in the past, and president Vicente Fox has pledged to reopen negotiations.
Bolivia is already an affiliate member of Mercosur, and this should facilitate the process of gaining full membership. Compared with Chile and Mexico, Bolivia is a weak and troubled market. During the year 2000, two major transportation blockages caused major setbacks to the food production chain there. Bolivia is currently a member of the Andes Community which has been plagued by numerous food industry trade disputes in recent years.
At the conclusion of a recent negotiation session related to dairy industry and other disputes, Mercosur leaders optimistically announced the “relaunch” of the trade block. If fact, while it indeed appears that the trade block has come back from last year’s near collapse, it is too early for food producers in the region to celebrate. Brazil needs to play a more important role absorbing Argentina’s food production. The food industry of all member nations will ultimately benefit as Argentina emerges from its prolonged economic crisis.
By Steve Lewis, just-food.com correspondent based in the US and Mexico
