Last week, the EU announced it had secured a trade agreement with South America’s Mersocur bloc, which is made up of Brazil, Argentina, Bolivia, Paraguay and Uruguay.

European Commission President Ursula von der Leyen confirmed the deal in Montevideo, capital of Uruguay on Friday (6 December).

The agreement, which will need to be ratified by member nations, would bring “more jobs – and good jobs – more choices and better prices”, von der Leyen said, as well as boost investments into both blocs and “forming a market of over 700 million consumers”.

The deal has been met with a mixed response in the food and drinks industry.

What is the EU-Mercosur trade agreement?

If ratified, the agreement is expected to build “the world's biggest free trade zone”, said Kaja Kallas, high representative for foreign affairs and security policy/vice-president of the European Commission.

Encompassing more than 700 million people, EU and Mercosur countries together produce 20.2% of the world’s global GDP, according to analysis from ING economists Inga Fechner, Thijs Geijer and Rico Luman. The EU bloc makes up the majority of the share at 17.4%.

EU exports into Mercosur were valued at €56bn ($59bn) last year, the Commission said. The bloc is Mercosur’s second largest “trade in goods partner”, while Mercosur is the EU’s tenth.

The deal looks to cut more than 90% of tariffs on products traded between the EU and Mercosur, which the Commission expects would save EU companies roughly €4bn in duty a year.

It plans to cut red tape for small and medium-sized businesses, increase access to raw materials in “an efficient, reliable and sustainable” way, and boost EU exports of agri-food products and ensuring “sensitive sectors” are protected, Brussels said.

The Commission has also described the agreement as “a major milestone in fighting climate change”, with both sides needing to adhere to the Paris Agreement. The deal also includes pledges to end deforestation and “clear and enforceable commitments on sustainable development, including on labour rights and sustainable management and conservation of forests”.

Why is it important?

Besides the fact the EU-Mercosur agreement could generate a super-sized free trade zone, it is also significant as efforts to close it have been on and off since 1999 when negotiations began.

An agreement was struck in 2019 but opposition from EU member states including Ireland, and more recently France, resulted in talks being extended.

Earlier this year, protests by French farmers threatened the signing of a deal. French politicians have been under pressure amid broader anger from the country’s farmers, who argue they are being hit by falling incomes, environmental regulations, rising red tape, and, crucially as far as the EU-Mercosur trade agreement is concerned, competition from imports.

The deal is particularly significant for agri-food industries. Food and agricultural products make up the largest part of the EU's imports from Mercosur, valued at €23bn in 2023, according to ING’s latest analysis.

Proponents of the agreement believe it will bolster trade, with both larger import quotas and lower tariffs on industries including sugar, soybeans, beef and poultry. This has been “stirring discontent” for EU producers in these sectors, ING says, with Mercosur peers being allowed to trade goods in for less.

And, of course, the deal comes amid concerns about how the new Trump administration views trade between the US and the rest of the world. “The EU-Mercosur deal looks to create a free-trade relationship with a significant bloc in the Americas/global South at a time when North American trade is at risk of new barriers," says Richard Parker, principal consumer insight analyst at GlobalData, Just Food’s parent.

President-elect Donald Trump has previously indicated plans to implement a blanket 10% tariff on all imports into the US, which could put pressure on EU-US trade relations come next year if he sticks to his word.

Parker adds the agreement “may increase the incentive to build reinforced relationships with Latin American markets (alongside Canada and Mexico) to offset any losses in US trade".

The purported benefits of the deal

When it comes to Mercosur countries, the deal expands their access to the EU market and “positions these economies to attract greater investment, driven by the EU’s stringent criteria”, says Valentina Sader, deputy director at US thinktank Atlantic Council’s Adriene Arsht Latin America Center (AALAC).

The deal proposes to make it easier for EU member states to trade with Mercosur members, by cutting tariffs “for main EU export products”.  

The Commission has argued Mercosur countries have “great consumer potential” for EU food and drinks that presently face steep tariffs.

Canned peaches have one of the largest duty stamps at 55%, while chocolate is taxed 20% and pastries, waffles and biscuits have an 18% tariff. Still wine is taxed at 27%, while for sparkling wine, spirits and soft drinks, it ranges from 20-35%.

The EU-Mercosur trade agreement is also expected to recognise 350 European Geographical Indications, for goods including Parmigiano Reggiano, Prosecco and Irish whiskey.

It will also provide “very limited access” to the EU market for “sensitive” goods such as poultry, beef and sugar, the Commission said.

In today’s troubled international environment and trade arena, this is a real breakthrough.

Alexander Anton, The European Dairy Association

As ING’s economists state in their note, the dairy, confectionery and alcoholic drinks sectors have been “more supportive” of the agreement.

“This is either because they can benefit from lower input costs, like confectionery and soft drinks manufacturers, or because the deal creates better market access for European cheese, beer, wine and spirits exporters,” ING's report said.

The European Dairy Association (EDA) has welcomed the deal. “So far, dairy trade has mainly taken place within the Mercosur region. The cheese and powder imports from the EU have not reached a significant volume. But this is where opportunities lie,” the EDA said on Friday.

EDA secretary general Alexander Anton added: "In today’s troubled international environment and trade arena, this is a real breakthrough that underscores the EU’s trade ambitions and the remarkable performance of its negotiation teams.”

When it comes to alcoholic beverages, wine is expected to do particularly well. “It looks as if the main beneficiaries are going to be EU wine producers and, to a lesser extent, spirits producers," Kevin Baker, director of alcoholic beverages/beer and cider at GlobalData, explains. "However, this is predicated on the assumption that there is a large untapped market for EU wines and spirits that is being held back by the current high tariffs.”

And, given the challenges faced by parts of Europe's wine industry in recent years, the deal may present opportunities for some producers.

European wine trade body Comité Européen des Entreprises Vins (CEEV) shared its support for the deal a day before it was signed. In a statement, CEEV’s secretary general Ignacio Sanchez-Recarte, described the agreement as “a vital opportunity for the European wine companies to access new markets and attract more wine consumers”.

The group also stressed that Brazil is “a rapidly growing market for high-quality European wines” but is restricted by high import tax, “alongside complex import procedures and national regulations that hinder access”.

Germany’s fruit juice industry association Verband der Deutschen Fruchsaft-Industrie (VdF) also expects the agreement to reduce the price of orange juice, with Mercosur member Brazil producing 80% of the produc traded globally. Klaus Heitlinger, managing director of the VdF, said the agreement was “a win for the entire value chain”.

The disadvantages of the EU-Mercosur trade agreement

Abrão Neto, non-resident senior fellow at the Atlantic Council AALAC, says “EU-imposed environmental and sustainability standards could disproportionately affect Mercosur producers, potentially offsetting some benefits”.

Pan-EU farming lobby group Copa-Cogeca said the agreement “would have profound consequences for family farming across Europe”.

Cogeca president Lennart Nilsson said the agreement as it stands “fails” to be “fair, balanced, and environmentally sustainable”, an “us[es] the agriculture; sector as a bargaining chip to benefit other industries”.

EU farmers protested the signing of the agreement in Brussels on Monday (9 December), with attendees including Copa-Cogeca and Irish and Belgian farmer associations.

Spanish farming association Asociación Agraria - Jóvenes Agricultores (ASAJA) has also called on local farmers to demonstrate on 16 and 17 December to protest a number of issues including the Mercosur deal.

According to ING analysts, a primary concern of French farmers is removing tariffs would greatly increase the quantity of less expensive South American food products like beef, which they believe would not stand up to EU environmental and food safety requirements.

Meanwhile, Polish, Austrian and Dutch farmers worry the agreement will bring “unfair competition”, that it “doesn’t meet the EU’s environmental ambitions” and ultimately, “contributes little to GDP for some member states”.

Too good to be true?

Before the EU-Mercosur deal can be set in stone, it must be approved by both the European Parliament and the European Council. If it is signed as a ‘mixed’ agreement, it will need to be ratified those bodies, as well as all 27 member states.

As ING highlights, the Comprehensive Economic and Trade Agreement (CETA) between Canada and the EU hasn’t yet been approved by all member states, which has left the process in a stalemate.

“To avoid repetition of the CETA experience, the EU could therefore split the agreement into two parts: the pure trade agreement and the non-trade measure part”, the analysts note, with a qualified majority (e.g. 15 member states) being needed instead of 27.

Four member states representing 35% of the EU’s population are needed in order to block the deal.

Opposition to ratification could come from players “that perceive a threat or may face threats to their competitiveness at home, with the aim being to delay or halt ratification”, GlobalData's Parker says.  

As it stands, Poland and France are two countries that have already been vocal in their criticism of the EU-Mercosur trade agreement.

In a statement on Saturday (7 December), Poland’s Ministry of Agriculture and Rural Development critiqued the tariffs in an official statement, claiming that the duty “provides for too large a reduction in EU customs duties and/or too high tariff quotas”, which could see Polish goods “forced out of EU markets” by Mercosur members’ produce.

The ministry argued its demand for Mercosur products to be required to comply with EU sustainable development standards in exchange for the removal of EU customs duties was not “practically implemented” in the deal.

It also said the safeguards intended to protect farmers were not effective enough as they were “not adapted to the specifics of the agricultural sector”.

Speaking to reporters before the EU Agriculture and Fisheries Council meeting on Monday, French Minister of Agriculture Annie Genevard said France remained “hostile” to the deal, which it expects would have a “profound” impact national production, including the beef, poultry farming and sugar industries.

The deal “does not guarantee in any way the reciprocity of the standards which are imposed on our own producers”, Genevard said.

Spain, Portugal and Germany have shown support for the agreement but, as shown by ASAJA’s planned protests, there are vocal opponents of the deal even in supportive member states.

The Commission has homed in on how the EU will reap the benefits of removing and reducing trade barriers, but this is unlikely to please the bloc’s agricultural players “who generally aren’t the greatest fans of globalisation and are a social/economic group ripe for targeting by the anti-globalist populist right across the continent”, Parker says.

Following the end of negotiations last Friday, von der Leyen described the “political agreement” as “not just an economic opportunity” but “a political necessity” as the world “heads towards isolation and fragmentation”.

ING's economists agreed with these sentiments, noting that if the deal does get ratified, it “would be welcome amid a global climate engulfed by a new era of protectionism, and would be significant step towards ongoing trade liberalisation.”

Given the criticism the deal faces, the full approval of the EU-Mercosur trade agreement seems hopeful.

Even still, as ING’s analysts said, it will be interesting “to see whether free trade supporters can prevail over the protectionists this time around”.