EU-Mercosur free trade agreement seen positive for poultry markets

The free trade agreement between Mercosur countries and the European Union was signed during the Mercosur summit held in Montevideo, Uruguay on Dec. 6, authorizing a new duty-free quota of 180,000 mt per year of poultry to be imported from Mercosur, according to the Partnership Agreement published by the European Commission on Dec. 6.

The report said that the new quota would just be enough to cover the increasing EU consumption and that it would be phased in over five years.

Industry sources considered the news positive for the sector as it enhances the competitiveness of Mercosur products in the European bloc, given that the tariff barriers imposed on other supplying countries to the EU will remain unchanged.

"The increase in the chicken export quota should help consolidate Brazil's dominant position in the European market while simultaneously creating more space for Argentine chicken, a sector with strong export ambitions that has experienced gradual growth in recent years", added Moreno.

One concern raised by some industry participants is that the number of plants in Brazil authorized to serve the European market is limited, and an increase in the number of licenses will be important to ensure that supply is not constrained.

Regarding impacts on European producers, one source mentioned that the main country affected would be Poland, which is the largest chicken producer in the bloc, accounting for 21% of the total produced, according to data presented in the Eurostat Dec. 4 report.

How export tariffs for chicken to the EU work today

Brazil, a member of Mercosur and the largest chicken supplier of the EU, exported 181,547 mt of chicken meat between January and August 2024, while Ukraine, the second-largest supplier to the bloc, exported 141,108 mt in carcass weight equivalent.

This volume, according to reports from industry sources to S&P Global Commodity Insights, was subject to the following tariff regime:

• Salted breast: a shared quota between the EU and UK of 5,000 mt annually with zero tariff.
• Fresh chicken breast: 170,000 mt of fresh chicken breast with a 15.9% tax. For amounts exceeding this quota, the tariff is Eur1,024/mt + variable duty, for a total of around Eur 1,200/mt.

According to S&P Global Commodity Insights analyst Jaime Moreno, Ukraine, the second largest exporter to EU, will continue to benefit from the extension of the Autonomous Trade Measures Regulation 2023/1077, maintaining access to the European market without tariffs until June 5, 2025.

Details and implementation

European Commission President Ursula von der Leyen said in a statement: "This is a win-win agreement, which will bring meaningful benefits to consumers and businesses on both sides. We are focused on fairness and mutual benefit. We have listened to the concerns of our farmers, and we acted on them. This agreement includes robust safeguards to protect your livelihoods. EU-Mercosur is the biggest agreement ever in terms of the protection of EU food and drink products. More than 350 EU products are now protected by geographical indications. In addition, our European health and food standards remain untouchable. Mercosur exporters will have to comply strictly with these standards to access the EU market. This is the reality of an agreement that will save EU companies Eur4 billion in export duties per year."

The decision, which has been on both economic block's agenda for the past 20 years, divides opinions among EU countries. On one hand, countries like Germany are largely in favor of the agreement, while others, such as France and Poland, both major chicken meat producers, have vehemently opposed to it. French farmers have claimed that the agreement with Mercosur constitutes a type of unfair competition, because Mercosur farmers have larger properties and lower labor cost, according to a report from Le Monde published on Nov. 16.

Despite being signed, the agreement still needs to be approved by a majority in the European Parliament, which, according to market participants, may take between six months to a year. Following this, the agreement must be ratified by the EU member countries to be implemented. "It took 20 years to get to this point [inking the deal] and now comes the harder part. It is up to European countries to approve or not this trade deal. At least 15 of the 27 members must approve, [representing] 65% of the EU population," said an analyst from S&P Global Commodity Insights.