Brazil faces new EU pesticide restrictions on agricultural exports

Access to the European Union market is likely to become more difficult for agricultural exporters such as Brazil, as Brussels moves to tighten rules on pesticide residues in imported products.

The European Commission is now considering rules that would effectively ban any trace of certain pesticides it classifies as the “most dangerous” in imports entering the bloc.

An internal European Commission study points to Brazil as one of the countries that could be most affected by the proposed “zero tolerance” approach. Brazil exported more than €18 billion in agricultural products to the EU last year.

At the same time, the study warns of the potential cost of the plan. If exporting countries refuse to adapt to European requirements, prices in the bloc could surge in the worst-case scenario. European consumers could face price increases of 332% for coffee and 85% for citrus fruit, for example — an outcome that would be politically difficult to sustain.

Under the current EU system, residues of some pesticides not approved in the bloc may be present in imported products as long as they do not pose risks to consumers. But some European groups argue that this still leaves room for the use of substances considered harmful to the environment.

In December, the European Commission, the EU’s executive arm, presented a proposal that would allow the bloc to reduce the permitted levels of certain pesticides — known as maximum residue levels, or MRLs — in imports to a technical zero. In practice, that would ban the use of those substances in products destined for the EU market.

The proposal also emerged as Brussels sought to ease pressure from European farmers angered by the trade agreement with Mercosur, the South American bloc made up of Argentina, Brazil, Paraguay and Uruguay.

The proposal is currently under separate discussion in the European Parliament and among member states. The bloc’s 27 countries remain divided. Ireland, which holds the EU’s rotating presidency, could present a compromise in September.

In any case, the move reinforces concerns among exporters that the European Union is continuing to restrict access to its market by creating rules that could override international standards and deepen a more force-based climate in global trade.

At least 19 major agricultural producers, including Brazil, Argentina, the United States, Canada and Australia, recently raised the issue at the World Trade Organization.

Broadly, they accuse the EU of seeking to eliminate residue limits for certain pesticides based on its own hazard criteria, rather than the science-based risk assessments established under international agreements.

They also argue that Brussels is trying to impose EU production conditions beyond its borders while disregarding different agricultural realities. Exporting countries say varying farming or climate conditions can justify the use of certain substances.

They warn that the European plan risks causing serious disruption in global agricultural trade and further undermining an already weakened rules-based trading system.

Commission study maps possible effects

The study by the Joint Research Centre, a European Commission service that provides science-based support for EU policymaking, analyzes the potential effects of the measure.

Of the 976 active substances not approved in the EU’s 27 countries, 80 meet the criteria for higher hazard. Of those, only 18 active substances have MRLs above the limit of quantification, or LOQ, meaning they could be subject to the ban. The measure could affect 235 products from 86 countries.

The study considered three simulation scenarios to assess the possible impact of implementing the European plan.

In the first scenario, the exporting country does not change its production practices and loses access to the EU market. In that case, total EU agricultural imports fall 41% by volume, with the steepest declines in citrus fruit, down 92%, and soybeans, down 90%.

EU agricultural production would rise slightly, by 1.1%, while livestock production would shrink, with pork down 5.8% and poultry down 5.4%, as feed costs rise 87%. Consumer prices in the EU could increase sharply: coffee by 332%, soybean meal by 105% and citrus fruit by 85%. Producers in third countries could halt exports to the EU, pushing down producer prices in the exporting country.

In the intermediate scenario, with partial adaptation to EU requirements, EU agricultural imports fall 8%, while EU production rises slightly, by 0.23%. Consumer prices in the bloc increase most for table grapes, up 6.5%, coffee, up 6%, and citrus fruit, up 5.6%. Spillover effects on the livestock sector become insignificant.

In the broad-adaptation scenario, in which part of the producer base changes practices and export costs to the EU are expected to rise 5%, total EU agricultural imports fall only 0.4%, with most product-level changes close to zero. Increases in EU production and consumer prices remain below 1% across all products.

According to the study, while a country’s overall agricultural production may not be highly exposed, economic segments involved in exporting commodities treated with the targeted pesticides may face high exposure. The “economic value at stake” for those segments is particularly high in Turkey, Morocco, Colombia, Brazil and Ukraine.

Measured as the EU’s share of total exports of the analyzed products treated with the agrochemicals in question, exposure reaches 79.9% for Morocco and 52.8% for Brazil.

The study identifies 30 countries as potentially exposed:

Export-dependent countries: Bosnia and Herzegovina, Morocco, Uruguay, Benin, Cameroon, Moldova, the United Kingdom, Ukraine, North Macedonia, Serbia, Panama, Suriname, Colombia, Turkey, Senegal and Brazil.

Production-dependent countries: Peru, Ecuador and Costa Rica.

Countries with export value at risk: the United States, Vietnam, Chile, China, Canada, South Africa, Israel, Côte d’Ivoire, the Dominican Republic, Tunisia and Belize.

Soybean trade would be among the most exposed

The European study examined in greater detail the dynamics behind changes in production, trade and prices for soybeans and soybean meal, among other products.

The EU depends heavily on imports of soybeans and soybean meal, which are used mainly as animal feed. Brazil accounts for nearly 50% of the total soybean supply used by the EU.

Of the 18 active substances under review, residues of four were detected in soybeans and soybean meal imported from Brazil, and three are authorized for use on soybeans in the country.

The study concludes that EU soybean imports from Brazil would fall 95%, or by 591,000 metric tons, if Brazil refused to adapt to Brussels’ requirements.

The impact declines progressively when Brazilian producers change their practices to keep exporting to the European market. With an additional adaptation cost of 20%, the reduction is cut by more than two-thirds, to 30%.

Brazil’s total soybean exports remain largely unchanged across all scenarios, indicating that most sales no longer made to the EU are absorbed by other markets. But that comes at a cost: Brazilian producer prices fall by 5.6% in the first scenario, 1% in the second and remain unchanged in the third. Alternative markets do not fully replace the value of lost EU demand, especially under the more severe assumptions.

EU imports of soybean meal from Brazil, in turn, would fall by 100%, or 9.525 million metric tons, by 25% or by 0.1%, depending once again on the intensity of the shock and the cost of replacing active substances in soybean production.

The decline in Brazilian exports would contribute to changes in EU sourcing patterns, with trade flows shifting to suppliers not affected by the reduction of MRLs to the LOQ. The contraction in soybean and soybean meal imports would also affect markets globally, particularly through changes in oilseed availability, crushing activity and feed supply chains.

Alternatives exist, but may raise costs

In general, the study says there are alternative active substances approved by the EU, but they could raise production costs in exporting countries by 20% to 40%.

For Brazil, the study notes that there are EU-approved alternatives to cyproconazole — used to protect crops against fungal diseases — that are also used in cereal production, including fosetyl-aluminum, bixafen, metalaxyl-M, fluazinam and fluxapyroxad.

However, Brazil also uses some substances not approved by the EU, such as propiconazole, flutriafol and mancozeb.

Among those non-approved active substances, only flutriafol still has MRLs above the LOQ for some cereal categories. It is not, however, classified in the higher-risk category that is the focus of the study.

The study says there is no evidence that pyraclostrobin, which is approved by the EU, is used in coffee production, even though its use is authorized for that crop. Brazil also uses EU-approved alternatives to cyproconazole in soybean production, including prothioconazole and pyraclostrobin.

Argentina uses EU-approved alternative fungicides in bean production.

As the Brussels-based news outlet Politico noted, the study’s conclusions leave the EU facing a difficult choice: keep angry farmers’ tractors off the streets or hit consumers in the wallet.

For exporters such as Brazil, market access is likely to remain complicated even with the EU-Mercosur free trade agreement.

Source: Valor Econômico

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