WILL SCOTLAND’S FOOD & DRINK EXPORTS BE HIT BY NEW EU-LATIN AMERICA TRADE DEAL?

It has taken twenty years of tortuous negotiations, but now it seems likely that the EU will finally ink a comprehensive trade deal with the Mercosur countries of Argentina, Brazil, Uruguay, Paraguay and newcomer Bolivia. President Macron of France has been the most vigorous opponent of any deal, fearing a backlash from his powerful French farmers, who are alarmed at the thought of tons of South American beef and other agricultural products flooding into Europe, undercutting their markets. But Macron, who is now regarded as a lame-duck president by many EU leaders, is finding himself marginalised. The big EU heavyweights like Germany and Spain are calling for the deal to be signed by the end of the year.  German Chancellor Olaf Scholz has said the deal should be done “quickly.” But what will the EU-Mercosur deal mean for Scotland?

The EU remains Scotland’s most important market for sales of whisky, salmon, seafood like langoustines, scampi and scallops, and beef and lamb. France is our number one market, accounting for our biggest sales of all of these products. Although increased costs involving red tape and transport delays were caused by Brexit, demand for quality Scottish food and drink has continued to grow. The reputation for excellence has seen Scotland’s red meat industry, including beef, lamb and pork, generate more than £2.8 billion annually, supporting 50,000 jobs in farming, and agricultural supply and processing chains. Scotland’s farmed salmon sector directly employs 2,500 people, with a further 10,000 jobs dependent on the industry. 64% of Scottish salmon goes to the EU.

But the EU-Mercosur deal could threaten these buoyant statistics. President Macron is right to fear the wrath of his farmers. A deluge of beef and other agricultural imports from giant Latin American producers could cut a swathe through French markets. The massive Chilean farmed salmon industry is itching to get a greater foothold in Europe, as indeed are the Chilean and Argentinian wine sectors. Cheaply produced beef from Argentina and Brazil will dent traditional EU markets. The French public are very supportive of their farmers and are not known for their fondness for free trade. Mixing these two elements could quickly become kryptonite for French political leaders. But president Macron, weakened by thumping defeats in this year’s EU and national elections, can no longer veto the implementation of the Mercosur deal. Realising that their power to sway other EU Member States has waned, French diplomats are now trying to influence the endgame, rather than block the Mercosur deal. We may yet see the Champs Elysées jammed with muck-spreading tractors before the end of the year!

When the deal is signed, EU supermarkets and consumers might suddenly discover an appetite for cheap beef, salmon, wine and a host of South American products. Scottish EU exports could face a nosedive. The trade agreement which will embrace more than 800 million people in the EU and Latin America, has been one of European Commission President Ursula von der Leyen’s key targets for years. She was thwarted by President Macron during her first term in office, but no longer scared of standing up to Paris, she is now determined to get her way. She is heavily supported by countries such as Germany, Italy, Spain, Austria, Ireland and the Netherlands, all key importers of Scottish food and drink products, who may see their loyalty switch across the Atlantic, lured by slashed duties and lucrative export opportunities for their manufacturers.

The EU currently exports over €80 billion (£66 bn) in goods and services to the Mercosur countries in South America. However, European companies face many trade barriers including high import duties, burdensome procedures, and technical regulations and guidelines which differ from international standards. The EU already has existing trade agreements with almost all of the other countries in Latin America, but extending their reach into the vast Mercosur territories could substantially boost EU exports. A deal will also benefit Mercosur’s meat and processed foods exporters in exchange for better access for EU companies in the automotive, pharma, chemical and textile sectors. The EU wants the Mercosur trade agreement to tackle unnecessary and discriminatory obstacles to European exports so that European firms can sell more goods and services to Mercosur. The agreement will end tariffs on cars (currently set at 35%), machinery, information and communications technology equipment, textiles, chocolate, spirits and wine.

In return, the Mercosur countries will see tariffs abolished on a range of similar goods, including notably food and drink products. The combined impact of lower production costs and an end to import tariffs, will mean that Brazilian and Argentinian beef and Chilean wine will be significantly cheaper than their EU equivalents and cheaper still than quality food and drink products imported from Scotland. Although the European Commission has guaranteed to protect strict EU food and welfare standards in the trade agreement, there is real concern that poor traceability, weak production values, lax border and movement controls, and even the illegal use of hormones, may compromise imported red meats from Brazil and Argentina in particular. In addition, a lot of Brazilian beef has apparently come from areas of the Amazon rainforest deliberately set on fire and deforested by unscrupulous cattle barons.

Brazil is the world’s largest exporter of chicken and beef, the third-largest exporter of turkey meat and the fourth-largest exporter of pork and is determined to build on that position. Currently, Brazil exports just 27,000 tonnes of beef annually to the UK, of which 87% is in processed products such as corned beef, with just 2% imported fresh or chilled, usually for high-end food service like Brazilian restaurants. This could dramatically change following the implementation of the EU-Mercosur deal, with 12.8% import tariffs abolished in Europe and 12% tariffs most likely abolished here too. There will be a glut of cheap Brazilian and Argentinian red meat on Europe’s supermarket shelves. Already reeling from Chancellor Rachel Reeve’s decision to hike inheritance tax on family farms in her recent budget, Scotland’s farmers are aghast at any further impacts on their tenuous livelihoods. Our livestock farmers who adhere to some of the toughest regulatory and animal welfare standards in the world, may find the future challenging.