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Mercosur-European Union free trade agreement: possible impacts for fruits and vegetables

After years of negotiation, the free trade agreement between Mercosur and the European Union may get off the drawing board. While some products will have their tariffs eliminated by the EU regarding the total volume traded between both blocs, others will have fixed quotas.

 

The agreement may be favorable for agribusiness in Brazil, because roughly 99% of national exports will have exemption of tariffs or they will be partially reduced. Concerning fruits, the deal will be even more important, given that our main competitors in shipments to the EU (Peru, Chile and Mexico) are already free of tariffs. Therefore, the agreement will increase the competitiveness of Brazil – Abrafrutas indicates that roughly 60% of fruits exported by Brazil are sent to the European Union, with taxes that range from 4% to 14%.

 

However, it is important to mention that, while products from Mercosur will have lower tariffs for the European Union, products from the EU will have an easier access in Brazil – including in natura and processed fruits and vegetables.

 

IN NATURA FRUITS AND VEGETABLES – Concerning fruits that Brazil exports more than it imports (such as mango, melon, watermelon, papaya, citrus and banana), the agreement may be favorable, although tariffs may not reduce immediately – lemon and lime, watermelon and melon, for instance, can have zero tariff in seven years. According to Abrafrutas, quotas may not be applied to exports of fruits – the exemption will be applied to the total volume sent by Brazil. Therefore, the competitiveness gain may encourage a higher participation on international sales compared to those in the domestic market – considering fruits mentioned above, only melon has a great share of its production allocated to exports.

 

As for fruits that Brazil produces, but also imports (namely apple and grape), the agreement may increase the EU market share on Brazilian imports – according to Secex, only 15% of apple imports came from the EU, while for grapes, less than 2% of purchases came from the bloc. Although in general the deal is positive for apple (Brazil exports during low supply periods in Europe and vice-versa), the domestic market may face difficulties in years of high production in the EU, because European fruits might have competitive prices.

 

Considering in natura vegetables, imports of onion and garlic are on the spotlight. However, the volume that comes from the EU is small: only 4% of garlic and 14% of onion imported by Brazil in 2018 came from the bloc, according to Secex. For these products, the impact may be the increase of the market share of European products, mainly for onion, given that it has been part of Letec (List of Exceptions to the Common External Tariff) since 2018.

 

PROCESSED FRUITS AND VEGETABLES – There will be impacts on processed fruits and vegetables, both imported and exported by Brazil:

 

- Orange juice: Brazil is the biggest exporter and the EU is the major destination. CitrusBR says that the tariffs range from 12% to 15%. Therefore, the gradual reduction of tariffs on the Brazilian orange juice in Europe may offset, in parts, the possible competitiveness loss compared to other types of juices and drinks.

- Wine: Tariffs of some of them will be eliminated in up to 8 years, which may allow European wines to hit the Brazilian market at more attractive values, reducing the competitiveness of the domestic product.

- Frozen pre-fried French fries: Although Brazil has been increasing its production, most part of frozen pre-fried French fries consumed in the country is imported – in 2018, 26% of acquisitions came from the EU, according to Secex. Currently, the tariff for the imported product is 14% and, besides increasing the European market share, the agreement may limit the competitiveness of the domestic product even more, given that the imported frozen fries arrive in Brazil at very competitive prices.

- Tomato pulp: Currently, Brazilian tomato processors import part of their demand – in 2018, 19% of imports came from the European bloc. This would be another case of possible increase of market share for the European pulp.

 

In general, the free trade agreement may bring great benefits for in natura or processed fruits and vegetables. In most cases, impacts are not immediate, mainly those that will have gradual tariff reduction.

 

Cheaper products, mainly those with low production in Brazil, may also favor consumers. However, it is important to mention that the free trade agreement still needs to be approved by countries in both blocs, scenario that can last for two years.

 

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