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U.S. Squeezed Out of the MERCOSUR Market
U.S. exports of wheat and corn to Argentina, Brazil, Paraguay, and Uruguay decreased significantly in the past decade as the result of ambitious market reforms and a push toward more regional integration. Since the late ‘80s, these countries have been actively bringing their policies in line with each other, facilitating expanded trade in the region at the expense of external trade. The evolution of freer trade between these countries began in 1991 with the signing of the Treaty of Asuncion, which formed the customs union that would become, in 1995, MERCOSUR, a trade agreement that extends one set of tariffs to member countries and another, much less beneficial set of tariffs to third countries. Concurrently, economic reforms in Argentina, the regions’ largest exporter, such as the privatization of nearly all state owned companies, including railroads and port facilities, reduction and elimination of export taxes, combined with strong world commodity prices in the early ‘90s resulted in increasing production. The Brazilian government began to curtail it’s involvement in the market in the ‘90s by reducing production subsidies which resulted in a decrease in wheat production and an increase in imports. Below is a look at the dynamics of this market and the impact of regional integration on U.S. wheat and corn exports.
Wheat
The pie charts show soaring intra-trade (trade among the four MERCOSUR member countries) in five year increments over the past fifteen years. They also show, concurrently, that the U.S. market share plunged dramatically as it was squeezed out by this intra-trade, which was fueled by growing Brazilian imports and expanding Argentine exports (see chart below).
Brazil’s rising needs usually absorbed excess Argentine production, leaving less available for non-MERCOSUR countries. As a result, exports to non-MERCOSUR countries now comprise a far smaller percentage of Argentine’s total exports than 5 and 10 years ago (see chart below). In addition to the transportation advantage and competitive pricing that facilitated the increase in regional trade in the first half of the 90s, the tariff provisions of the MERCOSUR agreement guaranteed Brazil would continue to remain a captive market for Argentina (see chart below).
Corn
As in wheat, average intra-trade soared in the ‘90s, while average imports from third countries plummeted. In contrast to wheat, however, corn production is growing at a much faster pace than the region can absorb. As a result, exports to third countries have boomed and compete directly with the U.S (see chart below).
Concurrently, the U.S. share of the MERCOSUR market was nearly 50% in the late ‘80s, but the push toward increased cooperation has now reduced it to a nominal amount.
For more information, contact Dorothy Adams at (202) 690-4195 or AdamsD@fas.usda.gov.
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