Limited impact of Mercosur Partnership Agreement on the EU beef market

January 6, 2025January 21, 2025

Limited impact of Mercosur Partnership Agreement on the EU beef market

The EU reached a negotiated agreement on the final texts of what is now called the EU-Mercosur Partnership Agreement on 6 December last (for details see this Commission web page). They include the texts agreed in June 2019, plus the political and cooperation components of the deal agreed in June 2020, as well as additional elements resulting from negotiations between March 2023 and December 2024.

The agreed texts have led to major upheavals within the EU. Several Member States, including France, Ireland, Austria and Poland, have come out to oppose ratification of the agreement over concerns about the deal’s potential impact on both European agriculture and the Amazon rainforest. Italy appears to be sitting on the fence and could go either way. These positions reflect opposition to the deal from farmer organisations as well as from environmental organisations in these countries and at EU level.

Much of this opposition has focused on the perceived negative impacts of the concessions the EU has made in the beef sector. A recent empirical analysis by the Institut de l’Elevage was commissioned by the Greens/EFA political group in the previous European Parliament political cycle. It claimed that the agreement “represents a major threat to European cattle producers’ revenues” though it did not provide any estimate of the magnitude of this impact.

In this post, I argue that this assessment exaggerates the likely impact of the Mercosur Partnership Agreement on the EU beef market. I conclude that, when the Agreement is fully implemented in six years’ time, any additional beef imports induced by the Agreement (which will be much less than the size of the preferential tariff rate quotas opened by the EU for Mercosur imports) might at most depress EU producer prices for beef by around 2%. While it is understandable that producers would prefer this not to happen, in the context of the normal volatility of beef prices, it is certainly not a major threat.

I first set out the provisions of the beef offer to Mercosur in the Agreement. The most contentious element is the opening of two Tariff Rate Quotas (TRQs) for fresh/chilled and frozen beef, respectively. I discuss the circumstances in which new TRQs can lead to additional trade. I then go on to estimate the likely increase in beef imports that might arise following the opening of these TRQs, and I conclude by estimating the market impact of these additional imports.

The beef provisions in the Mercosur Partnership Agreement

There are several elements in the EU’s beef offer in the Mercosur Agreement. Beef is treated as a sensitive product. Although some tariff lines are liberalised, standard Most Favoured Nation (MFN) tariffs on the principal imports of fresh and frozen beef are not reduced (see Appendix to Annex 2-A Tariff Elimination Schedule). Instead, the EU has offered two TRQs. One is for fresh beef of 54,450 tonnes CWE (BF1, covering 6 tariff lines in CN class 0201 where CN is the Combined Nomenclature used to classify goods into different sub-headings to determine which rate of customs duty applies). The other is for frozen beef of 44,550 tonnes CWE (BF2, covering eight tariff lines in CN class 0202) (CWE carcass-weight equivalent; conversion factors see Section E of Annex 2-A to the Tariff Elimination Schedule). These two quotas will be phased in over six years in accordance with the schedule set out in Table 1. The in-quota tariff rate applied will be 7.5%.

Table 1. Schedule to open beef TRQs for Mercosur countries. TRQ imports will enter the EU at a 7.5% duty rate.
Source: Annex 2-A, Tariff Elimination Schedule, Section B.

There are several other relevant provisions. The in-quota tariff rate on imports under the so-called Hilton beef quota (see below) will be reduced from 20% to 0%. Imports of prepared beef products (for example, corned beef) and for live cattle will be fully liberalised four and 10 years respectively after ratification of the Agreement. A bilateral safeguard clause can be applied in case increased imports from Mercosur cause – or even only threaten to cause – serious injury to relevant EU sectors including beef. An annex to the ‘Trade in Goods’ chapter disciplines the use of export taxes but, apart from taxes on the export of hides and skins, other beef products are not affected. This post focuses on the two new TRQs as these are expected to have the greatest impact and have received the most attention.

Understanding the impact of a Tariff Rate Quota on additional imports

For many agricultural products the EU’s Common External Tariff sets a high tariff (the Most Favoured Nation or MFN tariff) on imports. The EU frequently uses Tariff Rate Quotas (TRQs) as a way to liberalise trade for sensitive products. A TRQ is a quota for a volume of imports at a preferential tariff rate. Once the quota is filled, the higher MFN tariff is applied on additional imports. A TRQ has three components: an in-quota tariff (which may be zero); a quota defining the maximum volume of imports charged the preferential in-quota tariff; and a method of quota administration.

The crucial insight underlying this post is that opening (or increasing) a TRQ does not automatically lead to an equivalent increase in imports. It depends totally on the prevailing market situation (the original analysis can be found in Skully, 2001 and it is reproduced in an understandable way in Kume et al, 2010). For example, suppose a country has opened a TRQ for 50,000t of beef at zero duty, and now proposes to increase that to 80,000t. If exports within the TRQ are only 30,000t, this implies that exports are constrained by the absence of demand rather than by the TRQ. Increasing the TRQ in this market context will have no impact and there will be no increase in imports.

If, however, the TRQ is fully utilised but there are no over-quota imports, this suggests that the MFN tariff is prohibitive and that there is pent-up demand for additional imports at the in-quota tariff rate. In this market situation, we can surmise that increasing the TRQ from 50,000t to 80,000t would indeed lead to a corresponding increase in imports of 30,000t (though this conclusion also assumes that the demand for imports at the in-quota tariff is sufficient to absorb all of this amount).

Furthermore, when the import quota is binding, this implies that the domestic market price will be set by the size of the MFN tariff. The domestic price will be the world market price increased by the amount of the MFN tariff. As the TRQ beneficiary benefits from a lower preferential tariff rate (which may be zero), this gives rise to a quota rent. This equals the value of exports within the binding quota, multiplied by the difference between the MFN and in-quota tariff rates. This quota rent is a critical element in tariff quota negotiations as it can provide an element of compensation to the exporting country for the continued restriction of their exports in comparison to full MFN tariff liberalisation. The way in which the TRQ is administered together with the relevant market structure determines the distribution of the quota rent between exporting and importing countries and between the private economic actors and the government in each country (for example, if an importing country auctions the right to preferential access, a portion of the quota rent will be transferred to that country’s government rather than to the exporter). In our hypothetical example where a binding TRQ is increased from 50,000t to 80,000t, the exporting country benefits both from being able to sell a larger amount to the importing country and potentially also from the additional quota rent it can obtain on these additional exports.

Another implication of the quota rent is that an exporting country can maximise its value by exporting its highest priced (and thus highest quality) products within the TRQ. This is why we observe the Mercosur countries using their existing TRQs to export high-value boneless ‘other cuts’ rather than lower-priced and lower value parts.

A third situation is where the TRQ is fully utilised but there are also over-quota imports at the MFN tariff. In this situation, the volume of imports is controlled by the MFN over-quota tariff rate. There are two possible cases. In the first case, the additional quota does not exceed the existing over-quota imports. There is therefore no increase in the total amount demanded. However, some of the over-quota imports will now take advantage of the lower preferential tariff for the increased TRQ amount. There will be no increase in the volume of exports, but the exporting country can benefit from an increase in the quota rent on the additional TRQ exports depending on the TRQ administration method used and the prevailing market structure.

The second case is where there are existing over-quota imports but the increase in the TRQ is greater than the volume of these over-quota imports. This is the relevant situation for the two beef TRQs opened under the Mercosur Agreement. In this case, there will be again a switch of over-quota imports into the TRQ to take advantage of the lower preferential in-quota tariff, but there will also be additional imports equal to the difference between the additional TRQ and the existing volume of over-quota imports. Again reverting to our example, suppose that total imports amounted to 70,000t so there were 20,000t of over-quota imports prior to the increase in the TRQ. The TRQ is now increased to 80,000t. We can expect this TRQ increase to lead to additional imports of 10,000t, not 30,000t, as the other 20,000t increase will be absorbed by switching the existing over-quota imports to the TRQ.

As a final observation, assuming a downward-sloping demand curve for beef, this additional beef supply will lower the price on the domestic market. This lower price will reduce the value of the quota rent received by the exporting country not only on the additional exports but also on its existing TRQ exports. It is a priori inconclusive whether the exporting country benefits from an increased TRQ depending on the balance between the value of increased exports and the loss in the value of the existing quota rent.

Given this theoretical background, our task is to determine the existing level of over-quota imports from Mercosur countries and thus the additional imports potentially generated by the two Mercosur TRQs, as well as the potential impact of these additional imports on the beef producer price within the EU.

Existing beef imports from Mercosur

We start by looking at the trend in beef imports from Mercosur countries over time in Figure 1. Beef meat imports are of three kinds: fresh and chilled, frozen, and beef preparations (such as corned beef). There are in addition imports of live animals, beef offals (including thick and thin skirt) and beef fats as well as salted and dried beef, but these are either insignificant or intended for industrial rather than food use (e.g. beef fat for tallow). Figure 1 covers the three bovine meat categories, highlighting the trend in fresh/chilled and frozen beef imports where the Mercosur Partnership Agreement TRQs will be opened.

Figure 1. Trend in bovine meat imports from Mercosur countries in carcase weight equivalent (CWE). The 2024 figures only include imports up to October 2024. Imports are reported under Statistical Regime 4 which includes inward processing.
Source: DG AGRI Agri-food data portal, Beef trade based on Eurostat COMEXT data.

The overall picture suggests that beef meat imports from Mercosur countries have not been growing over time. Indeed, average imports in 2015-2019 were higher than in recent years, even allowing for the impact of Covid on import demand in 2020 and 2021. Partly this is because imports of beef preparations (not shown separately in Figure 1) have been falling, from around 22,000 tonnes in 2015 to 10,000 tonnes in 2024. Imports of fresh/chilled beef fell significantly in 2020 and have only slowly recovered. They amounted to 110,000 tonnes in 2023 and may well reach that total also in 2024. This is the same as the average for the first five years of the period but still less than in 2018 and 2019. Imports of frozen beef have remained rather stable throughout the period.

There is also a specific pattern in the origin of Mercosur beef imports (Figure 2). In tonnage terms, Brazil is the main exporter, accounting for 41% of total tonnes exported to the EU in the period 2020-2024, followed by Argentina with a 34% share. When distinguishing between fresh/chilled and frozen imports, the origins are very different. Argentina is the dominant supplier of fresh beef, accounting for 53% of the total, followed by Uruguay with 26% of the total. Brazil accounts for only 20% of Mercosur fresh beef exports to the EU. Brazil, however, dominates frozen beef exports with 71% of the total in the 2020-2024 period, followed by Uruguay with 19% while Argentina only accounts for 6%. Argentina is thus the dominant exporter of fresh beef and Brazil the dominant exporter of frozen beef to the EU.

Figure 2. Imports of fresh/chilled and frozen beef by origin from Mercosur countries, average 2020-2024, carcase weight equivalent.
Source: DG AGRI, Agri-food data portal, Beef trade based on Eurostat COMEXT data.

The different types of imported beef also follow different trade channels in the EU. Germany is the main import market for fresh beef, followed by the Netherlands, although some of the beef landed at harbours in these countries (Hamburg and Rotterdam) will be distributed to other EU member states. For frozen beef, the main markets are in southern Europe, dominated by Italy followed by Spain, with imports into the Netherlands also playing a role. This frozen beef is largely used for the manufacture of processed beef products (e.g. bresaola in Italy and various types of sausages and cured meats in Spain) which are then distributed as ready-to-eat products across the EU. Many of the plants manufacturing these products are owned by the large Brazilian meat companies such as JBS S.A. and Marfig Global Foods. Imports of frozen beef thus compete in a very different market to imports of fresh/chilled beef destined for restaurants and supermarket chill cabinets.

Tariff rate quotas play an important role in facilitating imports

Beef imports into the EU are subject to extraordinarily high tariffs, which should be kept in mind when there is a call for a level playing field with imports. Tariffs on the principal cuts of beef, both fresh and frozen, are shown in Table 2. The tariff is a combination of a percentage and a fixed amount. Because of the fixed amount, the ad valorem equivalent tariff rate varies according to the world market price for beef which can vary over time as well as by origin and by the type of cut. In practice, beef in these categories is primarily imported from Mercosur countries as boneless ‘other cuts’ consisting of high value beef cuts such as rump and loin. These tariffs can be converted to their ad valorem equivalents by relating them to the unit value of imports. In the case of fresh meat, Argentina is the main exporter to the EU and the unit value for its exports of boneless other cuts per kg of product weight averaged over 2021-2023 (taken from the Eurostat COMEXT database) was €10,735. The EU tariff works out at 41%. For frozen beef where Brazil is the largest exporter to the EU, the unit value for frozen other boneless cuts was €6,471 which implies a tariff equivalent to 60%. The difference in unit value between fresh and frozen cuts underlines that they compete in different segments of the EU market.

Table 2. Most favoured nation (MFN) tariffs applied to selected beef imports
Source: TARIC.

Given these extraordinarily high tariffs, much of the beef that enters the EU market from outside the EU enters under Tariff Rate Quotas (TRQs) that provide more favourable market access but for limited quantities. Beef TRQs comprise several WTO quotas comprising both country-allocated and erga omnes (open to all WTO Members) quotas and covering both live animals and meat products. In addition, the EU has opened TRQs for beef in its bilateral free trade agreements as well as an autonomous High Quality Beef quota opened in 2009 as a resolution of the US-EU beef hormones dispute. Mercosur exports benefit specifically from three of these TRQs.

GATT Frozen beef quota. The quantity which may be imported under the GATT frozen beef quota is 54,875 tonnes of frozen beef and veal (expressed as boneless product weight), falling within CN codes 0202 and 0206 2991 with an in-quota preferential customs duty of 20% ad valorem. This is an erga omnes quota which means that the quota is not pre-allocated to individual countries but is managed by first allocating import rights to importers who apply and subsequently issuing import licences. The relevant legislation was Commission Regulation (EC) No 431/2008, which has now been superseded by Commission Implementing Regulation (EU) 2020/761 (Annex VIII) as updated.

Hilton High Quality Beef (HQB) quota. The Hilton quota is for 66,826 tonnes of beef on a product weight basis with quantities allocated on a country-specific basis plus two quotas for buffalo meat for Australia and Argentina, respectively. The Hilton beef quota was originally granted by the European Economic Community during the Tokyo Round Multilateral Trade Negotiations in 1979 under the auspices of GATT, the General Agreement on Tariffs and Trade. As a result of the Uruguay Round Trade Negotiations, the European Communities converted the Hilton beef quota to a tariff rate quota listed in its schedule of WTO commitments. Over the years, both the beneficiaries and the TRQ amounts have changed, for example, as a result of successive enlargements of the EU. The legislative basis for the Hilton beef quota was Commission Implementing Regulation (EU) No 593/2013. The current import TRQ amounts are set out in Commission Implementing Regulation (EU) 2020/761.

The Hilton beef quota is specifically allocated for high-quality fresh, chilled and frozen beef, the specifications for which are set out in Regulation 593/2013. The quota covers selected cuts of boneless beef meeting certain age and conformation standards and, in the case of Mercosur beneficiaries, must have been exclusively fed through pasture grazing since weaning. Imports can enter under the CN codes 0201 30 00 (fresh boneless cuts), 0202 30 90 (frozen boneless other cuts), 0206 10 95 (fresh or frozen thick or thin skirt) or 0206 29 91 (thick or thin skirt intended for processing) (see Table 2 for MFN tariffs). The current in-quota tariff is 20% (except for Canada since September 2017 when the EU-Canada Free Trade Agreement went into effect under which the in-quota rate applicable to beef imports from Canada has been reduced to zero).

Table 3 shows all four Mercosur countries have specific allocations under the Hilton beef quota, with Argentina by far the largest beneficiary. The table also shows that Argentina, Uruguay and Paraguay generally make full use of their allocations, but Brazil only takes up around one-third of its allocated quota. Brazil’s beef exporters finishing animals in feedlot systems may have difficulty in sourcing sufficient animals with the specification that they are fully pasture-fed after weaning to be able to utilise all its Hilton beef quota.

Table 3. Allocation and usage of Hilton beef tariff rate quotas by Mercosur exporters (tonnes CWE converted from product weight by multiplying by 1.3).
Source: CIRCABC Beef TRQs

Grain-fed beef (High Quality Beef “Hormones”). In 2009, the EU and the US concluded a Memorandum of Understanding, revised in 2014, that provided a solution to a longstanding dispute in the World Trade Organization (WTO) regarding the use of certain growth-promoting hormones in beef production in the US. Under the agreement, a 45,000 tonnes (product weight) quota of non-hormone treated fresh, chilled or frozen beef was opened by the EU to qualifying suppliers, which included the United States. This is an autonomous quota referred to as the ‘EU 481 grain fed beef’ quota. Although managed on an erga omnes basis until now, only the United States, Canada, New Zealand, Australia, Uruguay and Argentina are recognised by the EU as eligible. Import quantities can enter under the CN codes 0201 (fresh bone-in or boneless), 0202 (frozen bone-in or boneless) or the 0206 CN codes for fresh or frozen thick or thin skirt).

Import quantities are allocated on a first-come, first served basis. Contrary to the requirement for Mercosur countries under the Hilton quota which is limited to beef derived from solely pasture-fed animals, eligibility for the grain-fed beef quota requires that the beef cuts are obtained from carcasses of heifers and steers less than 30 months of age at slaughter which have only been fed a diet, for at least the last 100 days before slaughter, containing not less than 62% of concentrates and/or feed grain co-products on a dietary dry matter basis. The in-quota tariff is zero per cent.

Only Argentina and Uruguay among the Mercosur countries can access this quota. Over the years, the US share of imports under the grain-fed beef quota fell relative to other qualifying exporters. An agreement in August 2019 established that 35,000 tonnes of this erga omnes quota will now be specifically allocated to the US, phased in over a 7-year period, with the remaining amount (10,000 tonnes at the end of the 7-year phase-in period) left available for all other exporters. This means that some amount of Argentinian and Uruguayan beef currently exported under this quota will likely be displaced to the new Mercosur quota. The legislative basis for this quota was Commission Implementing Regulation (EU) No 481/2012, which has now been superseded by Commission Implementing Regulation (EU) 2020/1988 as updated. The TRQ under which Argentinian and Uruguay beef is exported to the EU is usually fully subscribed. As this is an erga omnes TRQ, individual suppliers are not identified, and nor is the breakdown between fresh/chilled and frozen beef imported under this TRQ readily available.

Table 4 summarises current Mercosur access under the main beef TRQs. For management purposes, each of the TRQs is given an Order Number by the European Commission which is shown in the second column. Finally, the table notes the usage of these TRQs in recent years.

Table 4. Size and utilisation of beef TRQs relevant for Mercosur exporters.
Notes:
* TRQ tonnage amounts are generally expressed in product weight. Product weight is converted to carcase weight equivalent (CWE) by multiplying by 1.3.
** There is a further GATT frozen beef (A & B) TRQ intended for processing of 63,703 tonnes, bone-in (or carcass weight). Two types of products are distinguished for duty purposes: ‘A’ products include meat intended to produce cooked beef products and ‘B’ products are meat intended to be used to produce smoked and salted products. 50,000 tonnes are reserved for A products (order number 09.4057) and the remaining 13,703 tonnes is intended for the manufacture of B products (order number 09.4078). The in-quota tariff rate for A products is 20% and an additional specific levy is added for B products. The quota is managed on an erga omnes basis. The relevant EU legislation is Commission Regulation (EC) No. 412/2008 as updated. As almost no use is made of these quotas, they are not included in this table.
*** Until the EU-US agreement in August 2019 (USTR 2019), all eligible exporters could compete for this quota. Under that agreement, an initial volume of 18,500t product weight increasing to 35,000t over a seven-year transition period will be reserved for the US. The share of the remaining beneficiaries will thus be reduced to 10,000t product weight from 2026 onwards.

Role of tariff rate quotas in existing beef imports from Mercosur countries

Different estimates of total imports. There is some uncertainty over which countries get to make use of the erga omnes TRQs shown in Table 4. However, the overall breakdown between in-quota and out-of-quota beef imports from Mercosur countries is available from DG TAXUD data in the Trade and Quotas section of the DG AGRI Agri-food data portal. The data are taken from the Customs Surveillance System maintained by DG TAXUD and provide recent data, up to the day before the daily update of the visualisations. The Info note explains that the data are based on customs declarations and are subject to change without notice.

To avoid confusion, we can note that the overall trade flows reported by DG TAXUD on the DG AGRI Agri-food data portal are considerably different to the trade flows reported by the Eurostat COMEXT system on the same portal and which are reported with a two-month delay to assure data quality and consolidation. The Eurostat data were used to report trends in beef imports from Mercosur countries in Figure 1 above. To show the differences , I report both sets of data in Table 5 below. It can be seen, both for fresh and frozen beef, that the Eurostat figures report higher figures for total imports than do DG TAXUD (the exception is the year 2024, but this is because the DG TAXUD figures already include the figures up to end December 2024 while the Eurostat figures are only up to end October).

The reason is that the Eurostat COMEXT figures are provided according to Statistical Regime 4, which represents total trade, including goods imported or exported temporarily for further processing. Beef imported under inward processing rules and subsequently re-exported is not subject to tariffs, so does not show up in the TAXUD data. The DG TAXUD figures are used for our purposes here, as these data provide the breakdown between in- and out-of-quota imports for domestic consumption in the EU.

Table 5. Comparison of beef imports from Mercosur countries using COMEXT and TAXUD data, tonnes in carcase weight equivalents.
Sources: Eurostat COMEXT data from the Beef Trade section and DG TAXUD data from the Weekly TAXUD Report section in the DG AGRI Agri-food data portal. Fresh beef covers CN 0201 codes, frozen beef CN 0202 codes. COMEXT data include imports under inward processing arrangements which is subsequently re-exported from the EU.
*COMEXT data only up to October 2024. TAXUD data include all 2024 imports.

Impact of the Mercosur fresh/chilled beef tariff rate quota. We look first at the figures for fresh/chilled beef imports (Table 6). As noted previously, there has been a small recovery in these exports since the low point during the 2020 Covid year. TRQ in-quota imports have fluctuated somewhat from year to year but, as we would expect, show no overall trend. These TRQ imports reflect primarily the Hilton beef quota (where some of the variability comes from the low and varying take-up by Brazil of its country quota) and also imports under the hormone beef quota (where the variability is due to the fact that this is administered on a first-come, first-served basis among the eligible exporters so export amounts for individual countries are not guaranteed).

The increase in overall fresh beef imports reflects an increase in out-of-quota imports, from around 29,000 tonnes in 2020 to over 45,000 tonnes in 2024. Closer examination of the individual country figures shows that this increase is almost entirely due to greater out-of-quota exports from Argentina and to a much lesser extent, Uruguay. There has been no change in overall exports or the breakdown of exports between TRQ and out-of-quota exports for Brazil and Paraguay.

Table 6. In- and out-of-quota fresh/chilled beef imports from Mercosur countries, tonnes in carcase weight equivalents.
Source: DG TAXUD data from the Weekly TAXUD Report section in the DG AGRI Agri-food data portal.

We now discuss the implications of opening an additional 54,450t CWE quota for fresh/chilled beef from Mercosur countries which will be phased in over a six year period (Table 1). This is the TRQ that most concerns EU beef farmers as these imports of high end beef cuts (what the Institute pour L’Elevage in its analysis of the Mercosur agreement calls the ‘noble cuts’ and which it estimates contribute nearly one third of the value of the beef carcase despite only accounting for 18% of the meat) are most likely to compete with high end EU production in supermarkets and restaurants.

The first point to make is that this does NOT imply an additional 54,450t of South American beef will enter the EU market. When over-quota imports exist, the first adjustment to a new TRQ will be to switch as much of those over-quota imports as possible to the TRQ. It is only the excess of the new TRQ above the over-quota imports that can potentially create additional imports. Based on 2024 import figures, the likely maximum additional imports of fresh/chilled beef would be not 54,450t but approximately 9,400t (54,450t – 45,058t).

Even this figure is likely to be an over-estimate of the impact of the Mercosur agreement. In 2024, the Mercosur countries shared a hormone beef quota of 19,240t CWE with Australia, Canada and New Zealand and this is reflected in their 2024 import figures. In 2026, this quota will be reduced to 13,000t tonnes CWE as part of the deal to give a larger share to the United States. Some portion of the new Mercosur quota will simply substitute for the loss of a portion of the hormone beef quota. This could reduce the volume of additional fresh/chilled imports by a further 3,000t CWE or so, assuming that the Mercosur countries use around half of this quota (and by more, if they usually obtain a larger share as suggested by the figures for the 2020/2021 marketing year in Annex 1 in the Institut de l’Elevage report).

Potentially working in the opposite direction is the reduction in the in-quota tariff rate for the Hilton beef quota from 20% to 0%. This will have no impact on the quantities exported from Argentina, Paraguay and Uruguay that already fill their quota. The question is whether it will give a greater incentive to Brazil, which currently only fills one-third of its quota, to increase its in-quota exports of fresh beef. Our assumption in this post is that the main constraint that limits Brazil’s ability to export more within this quota is not the in-quota tariff but its inability to provide beef of the required quality, i.e. finished completely on grass. We thus do not anticipate increased exports as a result of this tariff concession. The incentive for Brazilian exporters will also depend on movements in the real exchange rate between the euro and the Brazilian real. I discussed trends in this real exchange rate in a previous post. If the Brazilian real were to depreciate in real terms against the euro, this would make Brazilian beef more competitive and potentially give exporters a greater incentive to make use of this Hilton beef quota.

A final point is to look at the baseline scenario for out-of-quota fresh beef imports from Mercosur when the Mercosur TRQ is fully phased in which will not be before 2030. We have already observed that out-of-quota fresh beef imports are growing, and this is largely due to Argentina. Where Brazil once had the largest share of the out-of-quota imports from Mercosur, it has now been overtaken by Argentina. There are good reasons to believe that Argentina will increase its out-of-quota exports even further by the end of this decade if it continues with its radical agricultural policy and macroeconomic reforms.

Argentina has a history of macroeconomic instability and policy volatility (this paragraph is based on the Argentina chapter in the OECD Agricultural Policy Monitoring and Evaluation 2024 report). Following a financial crisis in 2001, the country introduced a combination of export taxes and quotas on the export of several agricultural commodities including beef. After 2015 the government began gradually to remove restrictions. Export taxes and quotas were removed, and the peso was allowed to find its own exchange rate against the dollar. There was a further change of course following another financial crisis in 2018-2019. Export taxes were reintroduced as well as exchange controls, which resulted in a widening gap between the official exchange rate and other market exchange rates. Inflation escalated, to reach an annual rate of 211% at the end of 2023.

What matters for Argentinian competitiveness in the EU market is the movement of the real exchange rate of the peso against the euro. Given varying exchange rates and accelerating inflation, it is hard to form a consistent view of the path of the real exchange rate. The nominal value of the peso has depreciated against the euro, especially on the unofficial (blue) market, but whether this was sufficient to offset rising domestic inflation is hard to determine.

The introduction of export taxes has meant that Argentinian producers have faced negative policy support during this period equivalent to around a 7-8% tax in the years 2018-2023 as measured by the OECD’s Producer Support Estimate. The new Argentinian government reduced the beef export tax in 2024 and has announced plans to further reduce or eliminate export taxes on agricultural products. With more favourable economic returns, the competitiveness of Argentina’s beef farmers will improve and thus the potential for additional over-quota exports. The implication again is that the small amount of additional exports that might be ascribed to the opening of the Mercosur fresh beef TRQ will likely absorb exports that would anyway enter the EU, albeit paying the full over-quota tariff rate.

We conclude that a very high-end estimate of the additional imports due to opening the Mercosur fresh/chilled beef quota would be 9,400t. There are good reasons to think the actual volume will be rather less once the further loss of access to the hormone beef quota is considered. If Argentinian beef were to gain in competitiveness between now and 2030 due to domestic policy reforms, leading to additional over-quota imports even in the absence of the Mercosur agreement, the potential increase in imports due to the fresh/chilled beef TRQ could even be zero.

Impact of the Mercosur frozen beef tariff rate quota. The story for frozen beef imports from Mercosur shown in Table 7 is quite different. The table shows that over-quota imports are rare in the case of frozen beef, with only Brazil able to export small amounts over the quota. This is expected, as it reflects the much higher ad valorem tariff equivalent on frozen beef compared to fresh beef (see the discussion on Table 2 above). TRQ imports of frozen beef reflect the amounts available under the GATT frozen beef quota, although this is an erga omnes quota and the export amounts are not guaranteed. So in this instance, opening an additional 44,550t TRQ for frozen beef will likely attract an additional 40,550t of frozen beef imports (taking account of the almost 4,000t of over-quota frozen beef imported in 2023 and 2024). Although the beef imported under the GATT TRQ is also high-end beef cuts, much of this beef is intended for manufacturing purposes and will not directly compete with premium beef sales to supermarkets and restaurants in the EU.

Table 7. In- and out-of-quota frozen beef imports from Mercosur countries, tonnes in carcase weight equivalents.
Source: DG TAXUD data from the Weekly TAXUD Report section in the DG AGRI Agri-food data portal.

Market price impacts

We can make an estimate of the impact of the additional Mercosur TRQ beef imports on EU beef farmers’ prices and revenue by making some plausible assumptions regarding several market parameters. For our purposes, we make the following assumptions:

The additional imports facilitated by the Mercosur TRQs amount to a maximum of 49,950t CWE (made up of 9,400t fresh beef and 40,550t frozen beef). This estimate is likely to be on the high side for fresh beef for the reasons explained above.
Total supply of beef on the EU market (production plus imports) in 2024 is estimated to be 6,733 thousand tonnes (DG AGRI, EU Agricultural Outlook 2024-2035, figures). The additional Mercosur imports will add 0.74% to total EU beef supply.
We assume that the price elasticity of demand for beef at retail is -0.75 (Bouyssou, Jensen and Yu, Food Policy, 2024).
We assume that the share received by the farmer for beef in the final retail price is 50% (France AgriMer 2024).
The relationship between the price elasticity of demand at retail and producer level depends on the behaviour of the marketing margin. Assuming that the margin is a constant, absolute amount, the elasticity at producer level can be derived from the elasticity at retail level by multiplying by the ratio between the producer and retail prices. This gives an estimated price elasticity of demand at producer level of -0.375.
To estimate the change in price for a given change in beef supply, we use the relationship that the percentage change in price is given by the percentage change in the quantity supplied divided by the price elasticity of demand at the producer level. This gives us an estimated producer price change of 2%.
We take the estimated value of beef output in 2024 of €38 billion (Eurostat, Economic Accounts for Agriculture). A price cut of 2% would amount to a loss in beef farmer revenues of €752 million.
To put this amount in context, the price of steer R3 beef carcases in the EU in November 2024 was 11.1% higher than in November the previous year (Meat Market Observatory, December 2024). Given the price volatility that beef farmers experience, a price fall of 2%, while regrettable for the farmers concerned, cannot be considered a major upheaval.
As a sensitivity analysis, halving the estimated price elasticity of demand at retail would double the estimated producer price impact to -4.0%, while doubling it would reduce the producer price impact to -1%.
The analysis makes some simplifying assumptions. It implicitly assumes that the price reduction has no impact on EU beef supply (i.e., assumption of zero price elasticity of beef supply) while assuming an infinite supply elasticity for Mercosur beef. While the latter assumption is very plausible (Mercosur exports to the EU are a very small share of total Mercosur beef production of 14-15 million tonnes CWE), taking account of supply side adjustments in the EU market might slightly increase the anticipated loss of revenue. With a demand elasticity at producer level less than -1, any reduction in beef supply in the EU would be more than compensated by the corresponding price adjustment. To take account of these market equilibrium effects would require the use of a simulation model.

In a previous analysis (see Implement Consulting Group, Appendix C), I constructed a small partial equilibrium model of the EU beef market which took account of fears that, because Mercosur imports consist primarily of high-end beef cuts, they would have a disproportionate impact the EU beef market. That analysis gave a very similar price impact of 2%. I now think that fear of a disproportionate impact is exaggerated as most of the additional imports will be in the form of frozen cuts which compete in a different market segment to the premium market for fresh beef. The above analysis thus does not distinguish between different qualities of beef.

Conclusions

The impact of additional beef imports from Mercosur countries as a result of the EU-Mercosur Partnership Agreement is likely to be marginal. The analysis shows that the additional imports induced by the new TRQs for fresh/chilled and frozen beef will be significantly smaller than the headline TRQ figures might suggest. This is due to the high levels of existing over-quota imports, particularly for fresh/chilled beef, and the fact that much of the new TRQ allocation will simply replace current out-of-quota imports. For frozen beef, the low level of existing over-quota imports means that the additional TRQ allocation will likely result in a larger increase in imports. Nonetheless, the aggregate increase in imports relative to total EU beef production remains modest. As a result, the impact on beef producer prices in the EU will also be limited.

For fresh/chilled beef, the maximum estimated additional imports attributable to the Mercosur TRQ is approximately 9,400 tonnes CWE annually. Even this estimate may overstate the impact, given that Argentina and Uruguay will lose access under the HQB hormones quota, and the possibility that policy reforms in Argentina will strengthen its competitiveness and increase its ability to export over-quota beef over the period during which the Mercosur TRQ will be phased in.

For frozen beef, the situation is different. The very high tariff rate and the low level of over-quota imports means that the new TRQ allocation could result in additional imports closer to the full 44,550 tonnes CWE. Much of the frozen beef imported from Mercosur countries is destined for industrial use, such as processed meat production, which competes in a different segment of the market than premium fresh/chilled beef cuts. As such, the competitive pressures on EU beef farmers producing high-quality beef cuts will be less pronounced in this case.

The aggregate impact of the additional Mercosur TRQ beef imports on EU producer prices is estimated to be a reduction of around 2%. While this price decline represents a loss of revenue for EU beef farmers, it is modest when viewed in the context of the normal volatility of beef prices. Indeed, beef prices in the EU have experienced annual increases and decreases far exceeding this range in recent years, suggesting that the additional imports from Mercosur are unlikely to cause a major disruption.

These figures for additional imports are in line with those in the Institut de l’Elevage report commissioned by the Greens/EFA in 2023. It projected in its Scenario 1 (assuming that 100% of former over-quota MFN imports would be incorporated into the new TRQs as we have also assumed here) that total beef imports would increase by 46,200t CWE, which is even slightly less than what I have estimated. Unfortunately, although it claimed that this increase would be a major threat to EU beef producers, it did not quantify what this impact would be. Instead, it made a general comment to the effect that all of these imports would be high value cuts which are the main driver of the beef price in the EU and thus “the EUM-FTA is likely to have effects on the EU market and on EU cattle farmer’s revenues”. I have shown that most of the additional beef imported will be frozen cuts which are of considerably lower value and which do not compete directly with premium beef cuts sold by EU producers in supermarkets and restaurants. I therefore discount this argument when estimating the likely impact on the EU beef producer price.

The Institut de l’Elevage also proposes a Scenario 2 where the additional TRQs are assumed to lead to an increase in imports of the same magnitude, which it estimates would lead to an increase in imports of 103,100t CWE. This scenario assumes that medium-term outlooks estimate strong growth in Mercosur beef exports at MFN duties to the EU even if the Mercosur FTA is not implemented. The study notes explicitly that this growth cannot be attributed to the Mercosur free trade agreement. In this post, I have also noted the potential for Argentinian exports particularly to increase in coming years as negative taxes on beef exports in that country are removed. Any such potential ability to increase above-quota exports automatically diminishes the impact of a TRQ – recall that a TRQ can only increase imports in the presence of over-quota imports if the TRQ is greater than the over-quota imports at the time when the TRQ is implemented.

Other arguments are also made in the Institut de l’Elevage report to warn against increased imports from Mercosur countries, including different food safety and animal welfare standards as well as the potential incentive for deforestation. My view is that these arguments are equally thin and not strong arguments against ratifying the Agreement. Particularly when put against the economic and geo-political arguments in favour of ratification.

This was recognised by former Commissioner for Agriculture Phil Hogan who was the Commissioner when the Mercosur deal was first negotiated in 2019. Hogan recognised that there was worry among farmers and environmentalists about the deal and that the EU was on the defensive when it came to trade in beef with Mercosur. Nonetheless, he was clear that even that earlier agreement “was a fair and balanced deal, with opportunities and benefits on both sides, including for Europe’s farmers” (interview in the Irish Farmers’ Journal 28 June 2019). In making this assessment, Hogan also claimed that he had secured €1 billion in financial support and common market organisation support in the event of a market disturbance when [the agreement] is implemented” (Irish Times, June 29 2019). Interestingly, this idea of financial compensation appears to been resurrected in recent Commission thinking (according to this Politico report from 16 October 2024). However, my analysis suggests this will hardly be needed (as was also the case with the Brexit reserve as the Politico article points out). We must hope that Commissioner Hansen can step into Commissioner Hogan’s shoes and will make the case why ratification of this Agreement is in the EU’s overall interest, while ensuring that side effects are carefully monitored.

The EU beef market is characterized by significant structural challenges, including declining per capita consumption, high production costs, a significant contributor to greenhouse gases, and strong competition from alternative protein sources. These factors, rather than the limited additional imports from Mercosur, will be the primary determinants of market outcomes for EU beef farmers in the coming years.

This post was written by Alan Matthews. I want to acknowledge help from FS in pointing me to relevant data sources as well as helpful comments from FS and AG. Any errors remain mine.

Photo credit: Menu of the Köd high-end beef restaurant in Copenhagen (making a play on the Danish word for meat, kød), own photo.

Update 6 Jan 2025. I now use the estimated value of cattle output in 2024 to estimate the loss of revenue for beef farmers rather than the approximation I used originally. This gives a slightly higher revenue loss of €192 million annually for all EU.

Update 8 Jan 2025. I have corrected an error I made in the original post in converting the retail price elasticity to the producer price elasticity where I had divided rather than multiplied the retail price elasticity by the producer share in the retail price . This gives a higher market price effect of additional Mercosur imports under the two TRQs of 2% compared to the figure in my original post of 0.5%. My apologies to readers for this error. The estimated overall loss of revenue to EU beef producers is also higher. My thanks to KH for pointing out the error.

Update 20 Jan 2025. The post has been revised to take account of the fact that the higher level of reported beef imports from Mercosur shown in Table 5 is because these imports are reported under Statistical Regime 4 which includes beef imported under inward processing arrangements which is subsequently re-exported out of the EU. Such beef imports are not relevant to estimating the likely impact of an increase in TRQs under the Mercosur Agreement.

April 9, 2015May 24, 2020

TTIP and the potential for US beef imports

Beef is generally considered to be a sensitive sector in the EU-US negotiations on a possible Transatlantic Trade and Investment Partnership (TTIP) agreement. Currently, imports of beef from the US are limited by high tariffs and by the refusal of the EU to allow the import of beef produced with the aid of pharmaceutical technologies such as hormones and beta-agonists (a class of non-hormonal compounds that act to increase feed efficiency).

Nonetheless, EU imports of non-hormone-treated beef from the US have been increasing in recent years. Different views have been expressed about the likely consequences for the EU beef market if market access were further liberalised under a TTIP agreement. I examine the background to this issue in this post.

The WTO beef hormones dispute

Negotiations to increase US access to the EU market for beef as part of a TTIP agreement take place against the background of special trade concessions agreed following a complex series of disputes taken originally under the GATT and, subsequently, under the WTO’s dispute settlement process.

These disputes originated in an EU ban introduced in 1989 on meat and meat product imports from animals treated with six growth promoters, all of which were approved for use in beef production in the US (hormones are not approved for use in poultry and pigmeat production in the US). The US instituted retaliatory tariffs (100% ad valorem) on EU imports valued at $93 million, which remained in effect until May 1996.

In 1996, when the EU voted to maintain the ban, the US initiated a dispute process under the new Agreement on Sanitary and Phytosanitary Standards (SPS Agreement) which came into force with the establishment of the WTO in 1995. The WTO found against the EU on the grounds that it had not scientifically proven that the hormones in question posed a cancer risk to consumers.

The EU sought more time to undertake its risk assessment, and in 1999 the US (and Canada) were authorised by the WTO to suspend tariff concessions on imports of EU products up to a value of $117m and $11m, respectively. In 2003, the EU introduced new regulations which permanently banned one of the six growth promoters and provisionally banned the use of the other five while it sought more complete scientific information. With this new legislation replacing its original ban with a provisional ban based on the precautionary principle, the EU deemed it was now in compliance with its WTO obligations.

This argument was not accepted by the US and Canada. They maintained their higher tariffs, and in 2004 the EU initiated a new WTO case seeking the removal of these sanctions. The WTO Appellate Body ruled in 2008 that the US and Canada could continue to impose their trade sanctions but also that the EU could continue to ban imports of hormone-treated beef.

(For further detail on these disputes, see the one-page WTO summary of the original dispute and also the one-page summary of the compliance dispute. A more detailed description of the dispute and its impact on US beef trade with Europe can be found in this Congressional Research Service report. The European Commission DG TRADE has prepared this detailed timeline of the dispute.)

The US-EU Memorandum of Understanding

On 13 May 2009, the EU and the US reached a political agreement to freeze the WTO case through the signature of a Memorandum of Understanding (MoU) which allowed the import of US beef from animals not treated with growth-promoting hormones in exchange for the removal of the duties applied by the US to certain EU products.

The agreement set out three phases:

Phase I (August 2009 – August 2012) : lifting of US retaliatory sanctions on some EU agricultural products in exchange for the opening of a zero-duty tariff-rate quota (TRQ) for high quality hormone-free beef (‘High Quality Beef’) (20,000 tonnes). The new quota was in addition to the pre-existing 11,500 tonnes of so-called ‘Hilton beef’ allowed entry into the EU (this is the US/Canada share of a larger quota of high-quality beef opened following the GATT Tokyo Round of multilateral trade negotiations in the 1970s). The new HQB quota is specifically for grain-fed beef.
Phase II (August 2012-August 2013): (a) expansion of the new HQB quota to 45,000 tonnes and (b) agreement by the US to suspend all additional tariffs on EU imports arising from the WTO dispute. The EU quota is administered on a most-favoured nation basis. Over time, additional countries have gained access to this quota which is now shared by six countries: Argentina (added in 2014), Australia (2010), Canada (2010), New Zealand (2011), the United States (2009), and Uruguay (2011).
Phase III foresees that (a) the EU maintains the HQB quota at 45,000 tonnes, and (b) the US removes its trade sanctions, leading to a long-term resolution of the dispute. Phase III will begin with the official notification to the WTO Dispute Settlement Body of the withdrawal of the case. Parties have not yet reached agreement to enter this phase.

As part of Phase 2, in June 2012, the EU issued regulations increasing the HQB quota for grain-fed beef and changing the quota management system to a ‘first come, first served’ basis. The HQB quota was raised to 48,200 tonnes. In October 2013, the EU approved a two-year extension of the deal until August 2015.

The quota compares to total EU beef consumption of 7.6 million tonnes in 2014, although there is some evidence that US exports are concentrated disproportionately on high-value cuts. The Irish Farmers Association in its recent TTIP position paper estimates that the high-value cuts element of the EU market might represent just 9% of the total or around 700,000 tonnes. Clearly, the HQB quota absorbs a much larger share if that is taken as the relevant market.

US beef exports to EU

To facilitate trade between the US and EU, the USDA’s Agricultural Marketing Service (AMS) began operating the Non-Hormone Treated Cattle (NHTC) Program in 1999. The NHTC program certifies US beef for export to the EU by ensuring cattle are not treated with hormones. All producers—farm, feedlot, and rancher—must be certified by AMS to participate in NHTC. Certification requires producers to document adherence to all programme requirements and participate in an on-site visit by AMS to inspect herds, check documentation, and examine feed sources. Producers pay for initial site visits and subsequent compliance audits.

Currently, just 12 feedlots are on the Official Listing of Approved Sources of Non-Hormone Treated Cattle. All cattle intended to be exported to the EU under the current HBQ quota must transit through these feedlots prior to slaughter. Some of these are among the biggest feedlots in the US. One of the accredited NHTC feedlots, AzTz Cattle Co, is currently the 15th largest in the US with a capacity of 144,000 animals distributed over two yards.

In addition, the USDA’s Food Safety and Inspection Service (FSIS) certifies slaughterhouses and packing plants that process beef for export to the EU. Packers may incur costs for plant modifications needed to meet EU requirements, such as constructing separate facilities to prevent comingling of nonhor¬mone and other cattle. FSIS also coordinates residue testing of approved plants in accordance with the EU’s Additional Residue Testing Program. Under the rules of the program, randomly selected slaughter facilities must provide muscle cut and urine samples of certified cattle for residue testing. A private lab approved by the EU tests for growth hormones, beta- agonists (including ractopamine), and steroids.

US beef exports to the EU which were worth around $100m per annum virtually ceased following the imposition of the EU ban on the import of hormone-treated beef, but since 2006 have grown along with participation in the NHTC program (see chart below). EU statistics report that EU imports from the US under the duty-free quota reached around 17,800 tonnes during the 2014 calendar year. Note that there are considerable differences between US and EU statistics on US exports, with the US Meat Export Federation, drawing on USDA figures, suggesting US beef exports to the EU have increased from 17,500 tonnes in 2008 to 23,000 tonnes in 2014.

It appears that all US beef now enters under the zero-tariff HQB quota rather than the Hilton beef quota where the tariff rate is 20%. (Update 8 May 2015. Details on the utilisation of the Hilton beef quota for the most recent year confirms that the US made very little use of it in 2012/2014). The overall HQB quota was not filled up to the end of the 2013/14 quota year, but US sources expect that with the admission of Argentina to the quota in 2014, this will change in future and that US beef will be in greater competition with the other suppliers. In the quota year 2013/2014 the US share of the HQB quota fell below 50% for the first time (see chart below).

US sources argue that more US beef suppliers would likely take advantage of the duty-free quota if EU restrictions on the use of antimicrobial washes for the purpose of reducing pathogens were removed (pathogen reduction treatments, or PRTs). In 2009, the EU Commission agreed to seek approval of PRTs for beef. In 2013, the EU approved the use of lactic acid as a PRT on beef carcasses.

Beef imports and TTIP

Exactly what offer the EU might make to the US on beef market access is as yet unknown. The former EU Trade Commissioner Karl de Gucht made clear that the EU will not change its legislation on beef hormones as a result of TTIP. In the free trade agreement with Canada, the EU has offered a tariff rate quota (TRQ) of 50,000 tonnes of non-hormone-treated beef to Canadian exporters (this is made up of an additional quota of 45,838 tonnes on top of the quota of 4,162 tonnes that Canada was given in settlement of the hormone dispute). The EU has not yet made its TTIP market access offer known.

Removing tariffs completely could potentially open the EU market to imports of several millions tonnes, according to the European Parliament report on TTIP and agriculture (p. 60). For this reason, the EU is not expected to offer duty-free access on imports of beef. Instead, it is more likely to make a similar offer of increased TRQ access for non-hormone-treated beef to the US, although the size of this TRQ is as yet unknown. In addition, there could be a reduction in tariffs applying to imports of beef and beef products, even if they are not reduced completely to zero.

In their modelling of the impact of TTIP on the Irish economy, Copenhagen Economics used two assumed scenarios, under which the US is granted an additional quota of 50,000 metric tons of beef in the first scenario and an additional 75,000 metric tons in the second. Under both scenarios it is expected that the US will fully fill the additional quota. Unlike the HBQ quota, this quota would be allocated entirely to the US, implying (under the second scenario) a more than quadrupling of US beef exports to the EU compared to the 2014 level if the quota were fully filled.

There are two views on the attractiveness of the EU market for US beef exporters. In general, the US is a low-cost beef producer. Production costs are below those in the EU for a variety of reasons, including much larger scale of operation, the ability to use cost-reducing pharmaceutical technologies, cheaper feed and lower land and labour costs. However, some of these advantages disappear when selling to the EU because of the ban on the use of hormones and beta agonists, while also transport costs must be taken into account. Deblitz and Dhuyvetter, from the the agri benchmark Beef and Sheep Network, estimate the additional cost per head of non-hormone-treated beef at around €90 (€30 per 100 kg CW and average CW per animal of 300 kg). They calculate that US costs for non-hormone-treated beef landed in Europe are higher than EU prices (using 2012 as the benchmark year) and conclude that “the total impact of a free trade agreement on beef production in the EU appears rather limited.” (p. 4)

However, this analysis appears to ignore the actual prices received by US exports to Europe which reflect the premium cuts and quality of US beef. The premium for NHTC cattle held steady in the $180 to $200/head range from 2010 through 2013 (€160 to €180/head at current exchange rates). Indeed, the relatively short supply of US cattle at present, and specifically NHTC cattle, due to a prolonged drought has resulted in record-high NHTC premiums in the high $200s – with some reports as high as $300 (€250-€267 at current exchange rates).

The relative attractiveness of the EU market at any point in time will depend on relative US/EU prices and exchange rates. As a result of the recent drought as well as the strong dollar, US beef prices are currently, and exceptionally, above EU prices (see chart below).

Moreover, a recent USDA report on US meat exports to the EU pointed out that a larger TRQ would enable US producers to lower production costs for nonhormone beef by capturing greater economies of scale. As earlier described, the NHTC program imposes significant fixed costs: producers must set up separate production lines and comply with inspection and certification requirements. These costs are likely to require significant scale of production for producers to recoup their investments. Because the EU TRQs cap the amount of beef that can be sold with an NHTC premium, entrance into the NHTC program has been slow and gradual. Expansion of the quota may encourage further participation that could lower operational costs through improvements in economies of scale, further increasing the attractiveness of the EU market.

Historically, US exporters have responded to increasing TRQ allocations. Participation in NHTC has risen along with growth in exports to the EU since the MoU was concluded between the US and EU in 2009. Thus, the conclusion in the European Parliament report on TTIP and agriculture that the elasticity of US supply to further development of the EU outlet is likely to be very large seems to be the more plausible one.

Effects of increased US exports on EU beef production

In assessing the likely impact of increased US beef exports to Europe, two points need to be kept in mind. First, as the European Parliament report noted, a characteristic of the EU beef market is that two thirds of EU beef consumption comes from dairy herds. The supply of such meat is inelastic. This means that in the case of higher imports, the suckler cow sector (which produces only meat) would bear the adjustment costs.

Second, faced with a TRQ volume constraint limiting access to a higher-priced market, the natural reaction of an exporter is to exploit its limited access quantity by exporting higher-value cuts –this maximises the value of the TRQ access. As noted earlier by the Irish Farmers Association, the EU market segment for high-value beef cuts is likely to be disproportionately affected by additional US exports for this reason.

The most recent attempt at quantification is the Copenhagen Economics study for the Irish government on the impact of TTIP for the Irish economy. Recall that this study calculated impacts for the Irish beef industry based on two scenarios assuming additional TRQ access for US beef of 50,000 and 75,000 tonnes, respectively. The study assumes that the TRQ is binding, so the assumed reduction in tariffs on beef imports resulting from TTIP (assumed to be 50% if beef is treated as a sensitive product) is not relevant to the analysis.

The study assumes an import elasticity (i.e. how much imports respond to price) of -7 (higher than the value of -5 quoted as the value preferred by DG Agriculture) to reflect the argument that the main impact will be felt by the suckler cow herd as well as the greater importance of beef from suckler cows in Ireland compared to the EU on average. Any value for the sensitivity of EU prices to additional imports should be taken with a large grain of salt given the complexity and segmentation of the beef market. The fact is that we just do not know what the value might be. Crucially, in the absence of any information on the likely composition of US beef exports between different types of cuts, no changes in the composition of the beef sector as a result of TTIP are taken into account in the Copenhagen Economics study.

The report concludes that output value in the Irish beef processing sector would fall by between 1.7% and 3.2% depending on the scenario. In Scenario 1 (increased US TRQ of 50,000t), the volume of Irish beef produced would actually increase, and the drop in the value of output is due to a (very) small price reduction of 0.1%. In Scenario 2 (increased TRQ of 75,000t), the drop in the value of output is made up of a small drop in output volume of 0.8% combined with a reduction in price of 0.1%. In both scenarios, account is taken of a possible increase in Irish beef exports to the US as a result of reduced trade barriers on the US market.

The results of this study are specific to Ireland but are useful in indicating the order of magnitude of likely effects for the EU as a whole. To repeat, if US beef exports to the EU market are predominantly high-value cuts, the results presented in this study may underestimate the import competition that EU beef producers might face, and could thus underestimate the contraction in output, depending on the extent to which increases in exports of high-value cuts to the US would compensate.

Increased EU beef exports to the US

The European Parliament report concluded that the EU would be unlikely to ship large quantities of beef to the US, a particularly low-cost producer. However, some member states see opportunities. The US market has been closed to EU beef since 1998, following the BSE outbreak in Europe. The US only lifted this ban in March 2014, but the resumption of exports was still dependent on approval of slaughtering facilities by the US Department of Agriculture.

In March 2015 Ireland become the first EU country approved for export of beef to the US. In this first year, the Irish Minister for Agriculture Simon Coveney, has projected exports at 20,000 tonnes with the potential to ‘go way beyond that’ in the future. Many in the Irish industry considered this projection too optimistic, particularly given that American taste favours grain-fed beef rather than grass-fed Irish beef. But already a deal by the Irish beef processor ABF in February brings sales close to the 20,000t target in 2015. Further opportunities are expected once US approval is extended to minced beef.

While the resumption of Irish exports to the US is the consequence of lifting the BSE ban and has nothing directly to do with TTIP, it is worth noting that the anticipated volume of Irish exports to the US would go a long way towards offsetting the impact of an increased TRQ quota for US exports to the EU, at least as far as Ireland is concerned. It may not be the case that comparable opportunities exist for other member states.

Beef in TTIP – how serious is the threat?

Overall, most EU beef production is not competitive on world markets. This is particularly the case for beef from the suckler cow herd. With increased international trade liberalisation, the sector would be expected to contract. Whether this should be a matter for policy intervention or not depends on the weight given to different society concerns. These now encompass environmental, social, health, and climate concerns as well as economic efficiency objectives.

The European Parliament TTIP and agriculture report emphasises the environmental and social objectives. It notes that “[t]he suckler cow sector is perhaps the one sector in agriculture where there are genuine positive externalities. Permanent pasture and extensive grazing have been identified as providing many ecosystem services (for example biodiversity, water management, carbon storage). From a social standpoint, suckler cow production is concentrated in some particular regions and Member States (e.g. Ireland, France), in areas with limited production alternatives, and where the local economy depends a great deal on the livestock sector and the related industry.”

Maintaining the social viability of the European model of agriculture has been identified as a concern in the compromise amendments to COMAGRI’s draft opinion making recommendations to the European Commission on the TTIP negotiations, which are due to be voted on next week April 14, and which also request that Parliament be given sufficient time to evaluate the outcome of the agricultural chapter “focusing in particular on farmers and small family holdings”.

Public health analysts argue that beef consumption in the EU is already above desirable levels and contributes to poor health outcomes for the EU population, even if consumption has fallen significantly in recent years. Easier access for US beef would, ceteris paribus, lower relative beef prices and encourage additional beef consumption. Whether relative beef prices would change in reality as a consequence of a TTIP agreement would depend also on the improvements in market access granted for US poultry and pigmeat exports. Meat consumption as a whole would be expected to increase, although trade policy is hardly an appropriate policy instrument to address health concerns arising from an inappropriate pattern of food consumption.

Another public health angle is the possibility that the EU could remove its ban on hormone use in beef production in the light of updated scientific evidence. The restatement of the EU ban on hormone use in 1996 occurred at the same time as the confirmation of a link between BSE and the human disease variant Creutzfeldt-Jakob disease (vCJD), “followed by a media outbreak of apocalyptic scenarios sketching a man-made disaster of then unpredictable proportions” (quoting from an EFSA editorial on the European response to the BSE crisis). The EU authorities were desperate to prevent any further loss of confidence in the consumption of beef. Approval of hormone use was unimaginable regardless of the state of scientific opinion.

The situation on the beef market today is very different even if public opinion remains resolutely opposed to hormone use. Were the EU to even partially lift the ban on hormone-treated beef, the relevant constraint on US beef exports would no longer be the TRQ limit but the size of the out-of-quota tariff. Latin American exporters have shown they are able to export beef to Europe even paying the full out-of-quota Most Favoured Nation (MFN) duty (depending on the exchange rate). It would be realistic to assume that US exporters would also be competitive if the tariff on US exports were lowered as part of a TTIP agreement.

Beef production also contributes significantly to greenhouse gas emissions which the EU has pledged to reduce. Reduced beef production in the EU could thus help the EU to meet its more stringent climate targets to 2030. One argument against unilateral EU action to reduce beef production is that this would simply outsource production to other countries where emissions per unit of production would be even higher – Brazil is usually seen as the alternative source of production in this context.

Under a TTIP agreement, however, EU production would be displaced by US production. There are very different estimates of CO2-equivalent emissions per kg of meat in both regions, depending on production system considered and methodology employed. One recent FAO study put US emissions per kg of meat only slightly ahead of emissions in Western Europe, and much less than emissions from beef production in Latin America (see Figure 12 in that report). Thus concerns that global carbon emissions might increase as a result of TTIP would appear to be largely without foundation.

Finally, changes in EU beef production would be expected to lead to significant economic efficiency gains. EU direct payments typically make up most, if not all, of beef producers’ incomes. Thus, the resources employed in EU beef production are hardly remunerated at all at market prices. Applying the land, labour and other inputs currently used to produce beef in Europe to more remunerative activities would likely yield a significant gain in economic welfare.

These different objectives imply different answers to the question whether beef production should be supported in Europe and to what extent it should be treated as a sensitive product in the TTIP negotiations. The market access offer by the EU will reflect the perceived political balance between these different objectives.

This post was written by Alan Matthews.

Picture credit: Johnny Muck