Trade deal or trade-off?


An influx of South American chicken and beef could be headed our way

Why must agriculture be the “bargaining chip” when the EU negotiates trade deals?

This was the question asked by French Farm Minister Bruno Le Maire as he closed ranks with his Italian, Polish, Portuguese, Irish and Romanian counterparts this week to oppose the European Commission’s plans to reopen free trade negotiations with the Mercosur bloc (Brazil, Argentina, Paraguay and Uruguay).

The region-to-region deal could slash tariffs for Argentine beef and Brazilian chicken entering the EU, while opening up big South American markets for European car and chemical manufacturers, telecoms providers and financial investors.

The prospect of new negotiations and an eventual trade pact with the South American bloc exposes familiar fault lines.

Farm lobbies, agriculture-centric member states, MEPs from rural constituencies and the EU Farm Commissioner Dacian Ciolos fear their sector being undercut by cheap produce from South America. EU industrial exporters, liberal member states with services-driven economies, and the rest of the European Commission, are meanwhile licking their lips at the prospect of freer access to growing markets which have not yet been fully tapped by the US, China or others.

Is the EU ready to outsource its food production?

That the EU will lose on agriculture and gain on industry and services is already being taken as writ: Commission President José Manuel Barroso has already agreed to look into “special measures” to compensate EU farmers in the event of a deal.

Does this mean that the EU is willing to consciously outsource its food production to countries like Brazil and Argentina, while channelling its own investment and workforce into high value-added industries and services? Movement in this direction is already in motion, and the last decade saw EU food imports grow by some 25 million tons as the bloc’s farm trade deficit soared.

In reality the picture is more complex, and not every trade deal is about the EU sacrificing its agriculture for cars and banking services: the recent EU-South Korean deal saw Brussels pushing for access to the Korean pigmeat market, while the Franco-German automobile lobby kicked up the biggest fuss about being exposed to their Asian competitors.

Nonetheless an EU/Mercosur deal (in the absence of a multilateral WTO agreement in the meantime) would be the biggest political expedient to date of a situation where the EU imports more food and exports more industrial products/services.

Narrowing the cost burden

But even as this week’s EU Farm Council heard agriculture ministers slamming this unhappy division of labour, it also saw shreds of agreement on a way out of this bind. Ministers debated the ‘competitiveness’ of the EU agri-food model in parallel to the Mercosur discussion.

The two issues are very much interlinked: ministers concluded almost unanimously that the stringent animal welfare, food safety and environmental rules which regulate EU agriculture put it at a competitive disadvantage, particularly when tariffs are slashed and ‘low cost’ imports start flooding in.

These are the imbalances which are blamed for exacerbating the outsourcing of food production to less regulated economies.

Unfortunately ministers were less clear on how to remedy the situation. A few called for truly reciprocal standards to be made a sine qua non of trade deals. This still remains a far-off prospect, despite fledgling attempts to insert animal welfare obligations into WTO negotiations, and the basic social/environmental chapters which now figure in most bilateral deals.

Ultimately it is difficult to affect the bottom line; labour costs are and will remain considerably lower in countries such as Brazil for a time to come. But efforts to create a more level playing field, particularly on globally sensitive issues such as CO2 emissions, may go some way to rebalancing the cost burden between the two sides, and making Brazilian chicken and Argentine steak that bit less cheap.

It is now widely acknowledged that the brutal logic of economies of scale and comparative advantage cannot be allowed to run riot if it means driving whole sectors of the economy  out of business.

Keeping a social and ecological balance across European territories has gained a new premium, and the Commission recently illustrated this by releasing domesday scenarios of large-scale land abandonment in the event of full farm subsidy and tariff elimination.

Consumer penchant for local goods

If the EU does not manage to force standards harmonisation onto the agenda, shifts in EU consumer habits might provide a second line of defense against the ravages that a trade deal with the South American bloc could bring.

The EU’s ‘mature’ and wealthy consumers appear to be increasingly attached to the idea of homegrown produce. Consumers are flocking to the idea for diverse reasons: as an extension of organic sympathies, in opposition to carbon-intensive air miles, through a will to eat seasonally, through concerns for animal welfare, in solidarity to the local economy, or on the back of an assumption (perhaps misplaced) that local food is ‘wholesome’.

Either way the momentum in this direction is strong, and it is no coincidence that MEPs are pressing for comprehensive country of origin labelling and even an “EU quality label”. Next month’s launch of an EU-wide organic label reading “product of EU agriculture” will help to cement the increasing geographical dimension in ethical/lifestyle food choices.

The question is whether the growing base of consumer demand for ‘quality’ local goods can help to keep EU producers afloat in sensitive farm sectors: small producers such as cattle farmers in upland areas are likely to struggle the most should prices be driven down across the board when the low-tariff imports start flooding in.

Farm Commissioner Dacian Ciolos has talked at length about the need for small-scale family farms to stay in business. His CAP reform visions are likely to include some means of promoting local distribution circuits and reconnecting farmers with local markets; he could also look to channel a higher share of subsidies to small farms by capping the biggest payments.

These efforts may spell a lifeline for EU farmers if all else fails.

Photo by Valentina Pavarotti