During the opening of the congressional sessions, Milei criticized the regional bloc, stating that “all it has achieved is enriching large Brazilian industrialists at the expense of impoverishing Argentines.”
Despite being a major milk producer, Brazil is unable to fully meet its domestic dairy demand. Its needs are largely met through imports, with Argentina and Uruguay as the main suppliers due to geographic proximity and the tariff advantages granted by Mercosur.
In the first quarter of 2024, exports accounted for 30.1% of Argentina’s total milk production.
Considering that nearly half of these exports were destined for Brazil, they can be estimated as a vital component for trade balance and price stability in both countries.
If Argentina exits Mercosur, its dairy products would lose preferential access to Brazil, leading to higher tariffs and trade barriers, increasing the cost of products that currently benefit from reduced or zero tariffs.
Uruguay, a historical complementary supplier for Brazil, would have to expand its export capacity.
However, its production is relatively smaller and difficult to scale in the short term to fill the gap left by Argentina.
New Zealand, one of the world’s largest dairy exporters, could emerge as an alternative supplier.
However, increased logistical and tariff costs would result in higher prices for Brazilian consumers, generating inflationary pressures and potential declines in dairy consumption.
The Argentine dairy industry, facing the loss or restriction of its primary export destination, would struggle to redirect the production traditionally sent to Brazil. The need to diversify markets would require exploring destinations such as Chile, some North African countries, or even Asia. However, redirecting these volumes is not easy.
Each new market entails different sanitary, phytosanitary, and quality regulations, requiring investments and logistical adaptations.
In markets such as the United States or the European Union, Argentina would have to compete with major producers, potentially leading to lower prices for its producers and a restructuring of the value chain.
Moreover, if Argentina pursues a free trade agreement with the United States, it would open the door for American dairy products to enter the Argentine market. This could further displace locally produced dairy products.
For Brazil, the interruption or increased cost of Argentine dairy products would mean higher input costs. Turning to suppliers from other international markets would raise import costs, ultimately impacting consumer prices.
The Brazilian market, accustomed to a constant and predictable supply, would be affected by uncertainty and the need to restructure its supply chains, potentially leading to periods of shortages or fluctuations in dairy product availability.
A Transforming Ecosystem
The scenario outlined—potentially disrupting traditional Mercosur conditions and seeking new trade agreements—highlights the fragility and interdependence of the regional dairy market.
For Brazil, reliance on external suppliers poses a significant risk in light of shifts in Argentina’s trade policies.
Meanwhile, Argentina would face the challenging task of redirecting a substantial portion of its production, whereas Uruguay, despite its potential contribution, lacks the capacity to fully take over.
New Zealand stands out as an interesting alternative, but large-scale entry into the Brazilian market would be contingent on overcoming logistical and tariff challenges.
The situation calls for an integrative and collaborative vision to prevent the fragmentation of a market that, despite tensions, has historically maintained a balance.
Valeria Hamann
EDAIRYNEWS
