MERCOSUR influence continues to grow

by Cristina Kroll
Share This:
The MERCOSUR region is one of the strongest agricultural commodities suppliers in the world. With Argentina and Brazil among the top soybean and soybean oil exporters and Argentina as one of the major players in the wheat market, there’s no doubt about this region’s potential to grow in a global economy that is experiencing rising food demand. The MERCOSUR custom union was established in 1991 between Argentina, Brazil, Uruguay and Paraguay. Since then, Bolivia, Chile and Venezuela have entered as associate members. The MERCOSUR GDP amounts to €1.3 billion, and it is growing to a rate of about 7% annually. Also, it is an important agri-food producer and net exporting region.

This has not gone unnoticed by China, the second largest economy in the world, which needs an increasing amount of grain for its growing population.

It is not a minor detail that China and Brazil are linked as part of the BRIC (an acronym that refers to the countries of Brazil, Russia, India and China, which are all deemed to be at a similar stage of newly advanced economic development), and that this South American country has benefited the most within the MERCOSUR by China’s expanded demand. Soybean and soybean oil are among the main Brazilian exports to China.

On the other hand, Argentina’s exports to China grew by 57% in 2010 compared to the previous year, reporting sales of over $5 billion. After Brazil and the U.S., Argentina is the third largest agri-food supplier to China, with exports of over $4 billion. According to the Argentine Agriculture, Cattle and Fishing Ministry (MAGyP), Argentina exported over 10 million tonnes of soybeans and 1.8 million tonnes of soybean oil to China in 2010.

Argentina and Brazil will try to jointly increase their sales to China. The goal is to export in big volumes. According to the Argentine chancellery, these two countries plan to carry out over 200 commercial missions together in 2011 into various markets, including China.

In November 2010, an Argentine committee, led by Argentine President Cristina Fernández de Kirchner, visited China and reached an agreement to consolidate bilateral relations. With this mutual agreement, both parties showed the importance they each have in their respective economic strategy.

As a result of this agreement, China on Jan. 28 opened its market for Argentine barley imports, including it in the list of countries allowed to export to China. It was officially announced by the Argentine National Quality and Agrifood Health Service (SENASA) on Feb. 9. China is the largest beer consumer in the world and imports 1.6 million tonnes of barley a year, 50% of which is currently supplied by Australia. Argentina has an important opportunity to position itself as an alternative supplier, providing between 400,000 and 500,000 tonnes a year.

Due to the drought China has recently experienced, the wheat crop projections in that country went from 114.5 million tonnes to less than 100 million, which may open the door for more exports from MERCOSUR producers this year.


There are also very strong commercial relations between the MERCOSUR region and the European Union (E.U.). The E.U. Trade Commissioner, Karel de Gucht, visited Paraguay and Uruguay at the beginning of February in relation to the bilateral free trade negotiations that the two sides have been engaged in since May 2010. He mentioned through a press release that “a balanced and ambitious free trade agreement between the E.U. and MERCOSUR could bring substantial economic benefits to both sides and contribute to the economic recovery.”

In December 2010, the XIX Bi-Regional Negotiations Committee was held in Brasilia, Brazil, where both parties “reaffirmed their commitment to negotiate a comprehensive, balanced and ambitious Association Agreement,” said the European Parliament (EP). During the meeting, agreements progressed in regards to market access, rules of origin, services, investments, technical barriers, etc. The next meeting between these two regional blocks will be in Brussels, Belgium and Asunción, Paraguay in May.

The progress in these agreements has not gone without opposition. In January, the Agriculture Commission of the European Parliament as well as Primary Food Processors — five European trade associations representing manufacturers of flour, starch, sugar, vegetable oil and proteins, among other products — expressed concerns about the negotiations with the MERCOSUR due to the negative affect they believe it may have on the European agriculture and cattle industries.


During the last decade, MERCOSUR gained renewed strength due to the role played by Latin American presidents Luiz Ignacio Lula Da Silva from Brazil, the recently deceased former Argentine President Néstor Kirchner, and Venezuelan President Hugo Chávez, who enrolled in the same political and ideological spectrum. A clear example of how the MERCOSUR began to gain a life of its own was the Summit of the Americas in Mar del Plata in 2005, where the U.S. tried to form a free trade agreement involving the whole American continent only to see these South American Presidents block the attempt.

Despite this very relevant event, the MERCOSUR still has plenty of room for growth. The future appears optimistic as the new leaders of the MERCOSUR — Argentine President Cristina Fernández de Kirchner, the recently elected Brazilian Dilma Rousseff, as well as Chávez in Venezuela and Evo Morales in Bolivia — have said they will continue to consolidate the alliance of the MERCOSUR. A clear sign of this was that at the end of January, when Rousseff chose Argentina to be the first country to visit as the new president of Brazil. She said repeatedly during this trip that “the relation between the two countries is strategic and fundamental for the region’s development.”

The balance of trade between Argentina and Brazil showed a deficit of $209 million for Argentina in January, according to the Brazilian Foreign Trade Secretary. Wheat was one of the main five products exported from Argentina to Brazil that month, according to the private consultant Abeceb. Since Brazil only covers 50% of its internal wheat demand with domestic production of roughly 5 million tonnes per year, Argentina, Uruguay and Paraguay have become its top wheat suppliers. The Brazilian Agriculture Fishing and Cattle Ministry estimates that domestic production of wheat will reach 7.89 million tonnes a year by 2018-19, while the internal demand is projected at 12.25 million tonnes by that time. Therefore, “the internal supply will require wheat imports during the next ten years,” projected the Ministry.

According to the CONAB, an organization that is part of the Brazilian Ministry of Agriculture, Fishing and Cattle, the MERCOSUR produces of 21 million tonnes of wheat. Paraguay and Uruguay have elevated production, and together they exported over 1.6 million tonnes to Brazil in 2010. Due to its small territory and its geographical location, Uruguay has traditionally had Argentina and Brazil as commercial partners.

Argentina, which is the largest wheat producer in the region, exporting to Peru, Colombia, Uruguay, Bolivia, Brazil, Africa and the Middle East, sold 3.3 million tonnes of wheat in 2010. For the 2010-11 wheat harvest, the Buenos Aires Cereal Exchange estimates production of more than 15 million tonnes.

Argentina has also been a key exporter of barley and is generally characterized as the “natural supplier of the MERCOSUR” for this product. Argentina, which exported 505,452 tonnes of barley in 2010, has benefited by the increasing demand from Brazil.

Because the MERCOSUR is a net exporter of soybeans and soybean oil, there is little local demand for these products within the region. The augmented demand for these products from countries such as China, as well as the demand originated from the biofuels industry, has caused an increase in export markets for this crop. In Argentina, this process has also been boosted by the export restrictions set for corn and wheat.

While Brazil and Argentina are the leading soybean producers in the MERCOSUR, Paraguay has made progress in soybean production. According to the latest data published by the Paraguayan Chamber of Exporters and Commercializers of Cereals and Oleaginous (CAPECO), with an increase of only 6.1% in the cultivated area, Paraguay produced 7.3 million tonnes of soybeans in 2010 after harvesting only 3.6 million tonnes in 2009. Of that 7.3 million tonnes, Paraguay exported about 5.6 million tonnes of soybeans last year.

The MERCOSUR region is also becoming a strong corn exporter. The National Association of Cereal Exporters (ANEC) of Brazil estimated that corn exports could grow in the 2010-11 campaign up to 11 million tonnes, a 40% increase over the previous crop. The Brazilian corn harvest is expected to reach 51.3 million tonnes in 2011 due to favorable climatic conditions and in spite of a 9% drop in the cultivated area. In addition, through a strong increase in yields, the Argentine corn harvest went from 12 million tonnes in 2008-09 to over 22 million tonnes in the last campaign. Uruguay produces over 500,000 tonnes of corn a year, but only for the domestic market.


Although Argentina consumes about 6.5 million tonnes of wheat and 8 million tonnes of corn a year, not all the surplus is exported. Since 2006, the local government has restricted exports in order to assure domestic supply. So far, 5 million tonnes of corn and 7 million tonnes of wheat have been authorized for exports in the 2010-11 campaign. According to Victoria Jauregui, a corn expert from Cargill Argentina, “the Argentine Cereals Exporters Center divides that amount among trades, according to each exporter’s market share from the last three years. According to this distribution, the National Office of Agropecuary Commercial Control grants the export permits required to sell the corn to foreign markets.” In addition, wheat pays in Argentina 23% of export taxes while corn exports pay 20%. It is the only country in the MERCOSUR to apply these fees and restrictions to grain exports.

With the leading wheat producer in the MERCOSUR limiting exports, the region could lose market share. A recent report on South American Wheat, released by Cargill during the last International Association of Operative Millers Middle East and Africa District Conference, showed that this continent “will continue to become a smaller player in the world export market pie.”

The report also noted that the 2010-11 export wheat availability for destinations outside the region is diminishing fast.