EU-Mercosur trade agreement affords Netherlands modest economic growth with disadvantages for beef sector

The EU trade agreement with Mercosur countries (Argentina, Brazil, Paraguay and Uruguay) will afford the Netherlands a modest economic growth of 287 million euros (0.03% of the GNP) if the agreement is fully implemented in 2035. Some sectors, such as the machine and transport sectors and the pharmaceutical industry will grow, but there will be negative consequences for the beef cattle and veal industry.

These findings are the result of a study by Wageningen Economic Research, who, together with Ecorys consultancy, examined the effects of the agreement. The study was done in response to the motion by Voordewind c.s., which was adopted by the House of Representatives on 4 July 2019.

Effects vary per sector

At the sector level there are positive and negative effects for the Dutch economy. The biggest production and export increases are expected for the machine and transport sectors and the pharmaceutical industry, all of which already export relatively large amounts to Mercosur countries. The Dutch poultry sector will also grow to some extent. This is not the result of increased export to Mercosur but because the sector in other EU countries will be more affected by competition from Mercosur; because the demand for poultry will continue to grow, the Dutch sector can export more to the rest of the EU.

Few consequences are expected for the pork industry. A (small) tariff-free import contingency has been granted to Mercosur, but because of the current differences in veterinary standards (i.e. the EU ban on the feed additive ractopamine and animal identification requirements), it is not expected to be utilised. Similarly, an increase in beef import from Mercosur to Europa will strongly depend on compliance with food safety standards (SPS) in accordance with EU regulations. In the past few years, for example, the Brazilian poultry sector was not always able to meet the EU’s food safety standards. Consequently, the expected increase in Mercosur’s poultry export to the EU largely depends on further investments in production methods and food safety inspection systems in Mercosur to make them compliant with EU regulations.

Income effects at the business level

As the motion requested, the income effects at the business level have been estimated for some agrarian sectors. Pork and poultry businesses will profit from lower feed prices so the income effects for these businesses will be positive. There will be almost no effects for dairy cattle businesses and crop farming businesses. The average income for calf and beef cattle businesses will be lower. Calf businesses will earn an average of 800 euro less per company (2% of the average income in 2017-2019). That average result is mainly determined by the fact that adult beef cattle are also bred at the larger companies and there will be a relatively large drop in the price of beef. For beef cattle businesses – in the Netherlands a small-scale type of business with negative incomes on average – will earn an average of 700 euros less per company.

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