The trade agreement entered between the European Union and Mercosur on 28 June 2019, in Brussels, after 20 years of negotiations, will boost the whole Brazilian economy, with gains going beyond increased agribusiness exports generated by tariff reductions. The agreement between the two blocs accounts for 25% of the world GDP and encompasses 750 million people. It is thus a strategic deal for all segments of the Brazilian economy, paving the way to cost reductions and opening preferential markets to the European Union, as well as strengthening Brazil’s participation in the large global production chains.

Early economic projections of the Ministry of Economy estimate that the agreement will represent an increase in Brazilian GDP of US$ 87.5 billion in 15 years, with potential to reach US$ 125 billion if we consider the “reduction of non-tariff barriers and the expected increase in total productivity of production factors”. According to the Ministry of Economy, the trade agreement will increase investments in Brazil in the same 15-year period by US$ 113 billion.

In addition to the initial projections, concrete effects were highlighted for Brazil, due to its leading role in finalizing the agreement. Soon after it was signed, important countries contacted Brazil to continue and to establish bilateral agreements, including Japan, South Korea and Indonesia. Moreover, the deal is an important context element and strengthens the Brazilian candidature to the OECD – Organization for Economic Cooperation and Development, which will bring important investments to Brazil.

Implementing the Deal

There is still an important path that the EU and Mercosur will have to go through to fully implement the agreement. Although there is not a deadline established to complete the deal, the block countries have taken three years on average to sign documents of the kind.

The Agreement Importance for the Brazilian Coffee Agribusiness

The European Union accounts for approximately 50% of Brazilian coffee exports. Brazilian Government representatives, such as the MRE – Ministry of Foreign Affairs and MAPA – Ministry of Agriculture, Livestock and Food Supply, presented details about the successful negotiation in a recent meeting on the topic, attended by the most important Brazilian agribusiness organizations.
Answering Cecafé questions, the representatives highlighted that the Brazilian proposal was to strengthen the country’s position—historically the world’s greatest producer and exporter, and second largest coffee consumer—as a hub for global coffee production and manufacturing. Initially, the representatives explained the current tariff context for roasted & ground and instant coffee and then the tariff removal—from the current 9% for instant coffee and 7.5% for roasted & ground in four years.

To expand this global hub, Brazil will also have to discuss its commercial opening to coffee imports. Another issue of the agreement refers to manufactured coffee exported by the European Union to Mercosur, which may have significant Brazilian origin.

Since the Mercosur comprises Brazil, Argentina, Uruguay and Paraguay, South American coffee producer countries and market competitors like Colombia and Peru are not inserted in the scope of the agreement.

The Precautionary Principle

The Agreement establishes the “precautionary principle”, which generated debate among the industry specialists, since it would impose barriers for the purchase of products considered harmful due to the use of prohibited agrochemicals or grown in illegal deforestation areas, even without scientific evidence.

Brazilian representatives say that the final document changes the principle concept and allocates such issues into the Trade and Sustainable Development Chapter. Thus, the new concept mitigates the risks of trade impositions, since an express clause was inserted to avoid arbitrary barriers and measures. There is a provision that establishes that periodical reviews of the principle are mandatory and states that scientific evidence must be submitted for consumers to interrupt any purchases preventively.

Precautionary Principle and Brazilian Sustainability

The Sustainable Agriculture definition establishes that it “respects the environment, is socially fair and economically feasible. To be considered sustainable, agriculture should ensure future generations the capacity to meet production needs and the quality of life in our planet”.
Brazilian agribusiness practices sustainability based on three classic pillars: economic, social and environmental. The country has the strictest environmental and social laws, and research, technology, innovation and organization of production chain segments resulted into significant productivity growth. To illustrate, Figure 1 presents Brazilian coffee growing productivity and compares it to some competitors.

Figure 1 – Comparing Brazilian Productivity vs. Selected Producer Countries

Source: Conab and USDA (2018). Prepared by Cecafé (2019)

It is worth mentioning that today’s coffee grown area is 51% smaller compared to 1960, considering the current coffee area of approximately 2.2 million hectares. In the period, Brazilian coffee plantation average productivity went from 6.4 bags per hectare to 33 bags in the 2018/2019 crop, up by 416%.

Brazilian agribusiness fulfills its successful mission of providing food safety to the world. According to Embrapa (Brazilian Agricultural Research Corporation), Brazilian agricultural production is enough to feed the Brazilian population four-fold, or approximately 1 billion people in the world.

Moreover, according to Embrapa Territorial, the total area allocated for conservation, maintenance and protection of native vegetation in Brazil occupies 66.3% of the territory. The number includes areas preserved by the rural segment, full conservation units, indigenous lands, vacant lands and lands not registered with SiCAR. Altogether, they account for 631 million hectares, or the size of 48 European countries, as presented in Figure 2.

The entire domestic production takes place in 7.6% of the territory. Growers preserve more native vegetation inside their properties (20.5% of Brazil) than all conservation units together (13%).
In the coffee production chain, top producer regions sit in states where rural properties have, on average, a percentage of the area dedicated to native vegetation preservation beyond that established by the Forestry Code. In Minas Gerais, the percentage is 34%; in Espírito Santo, 33%; São Paulo, 22%. In Bahia, 45% of the areas are dedicated to conservation.

High rates of environmental protection in Brazilian coffee growing show the activity’s sustainability. Moreover, coffee production has high social relevance, since approximately 86% of the more than 300 thousand producers are small growers.

Correct and safe use of agrochemicals is another relevant issue. The Brazilian tropical climate and possibility of having intercropping and successive crops—two a year, or even three in several regions—intensifies the occurrence of pests, diseases and weeds.

Figure 2 – Land Use and Occupation in Brazil

Favorable climate conditions for agricultural production are present throughout the year, demanding greater management efforts from producers. Nonetheless, several important counties in farming production with temperate climate make use of more relative amounts of pesticides when compared to Brazil. The FAO – Food and Agriculture Organization of the United Nations – ranks Brazil as the 44th largest consumer of agrochemicals in the world, behind European countries like the Netherlands, Belgium, Italy, Ireland, Portugal and Switzerland. Figure 3 shows the FAO ranking for some selected countries, considering the use of pesticides per grown hectare.

Brazil also stands out in the recycling of pesticide containers. On average, the country returns 95% of containers, remaining at the top of the list of countries that withdraw most of these containers from the field: 95% of the pots and gallons used are returned for recycling.

Figure 3 – FAO ranking for selected countries per planted hectare

 

In the social sphere, the agribusiness wealth has contributed significantly to the generation of millions of jobs and the improvement of the population’s quality of life.

In quality of life, along with the Gini index, which measures income, it is interesting to observe the HDI (Human Development Index), which takes into consideration income, education and health. Comparing the HDI established by the FAO – Food and Agriculture Organization of the United Nations – for the country in the last decades, we can see that Brazil’s agricultural development has improved people’s lives.

According to preliminary data from the 2017 Agricultural Census, recently presented by the IBGE (Brazilian Institute of Geography and Statistics), it is also good business to be a coffee grower in Brazil, including all sustainability, economic, social and environmental aspects.

Final Considerations

The EU-Mercosur agreement assumes that trade should not occur at the expense of the environment or working conditions. On the contrary, it should promote sustainable development.
Brazil meets the requirements of the agreement and is ready to demonstrate to the world how to balance production with environmental preservation. Brazil is absolute leader in the global coffee market. The terms of the agreement strengthen the country’s position before the most diversified and demanding markets.

Cecafé, as a legitimate representative of the Brazilian coffee exporting sector, judiciously conducts several sustainable actions with coffee growers and other segments aimed at the national interest.

Through its Social Responsibility and Sustainability Programs, Cecafé has already inserted the topics covered in the “precautionary principle”, reaffirming the country’s commitment to the best environmental and social practices in all segments of the productive chain.

The Informed Producer, for example, has already trained more than 6,000 producers in digital inclusion, environmental management and in good agricultural practices, including also the correct and safe use of agrochemicals.

There are also special approaches for chemical and mechanical weed control techniques and pest and disease management, seeking sustainable alternatives for coffee growing, always respecting the MRL – Maximum Residue Level of the coffee produced to comply with the regulations of the several importer countries.

Cecafé, together with agricultural pesticide companies and Plataforma Global do Café, among others, is preparing to carry out the Responsible Use of Agrochemicals Project this year, with the following objectives: to make applicators aware of the importance of using PPE, storing agrochemicals properly and safely and promoting integrated management of pests, diseases and weeds.
Socially, Cecafé further narrowed its relations with Instituto InPACTO – the country’s most important institution entirely devoted to eradicating slave-like labor in Brazil.

The Council also takes active part in events like Mesa de Café Brasil and in Coffee Workgroups. The goal of the project, fully aligned with international demands and expectations and the needs of global market transparency, is to broaden the involvement of all stakeholders in promoting a positive and transformative agenda for decent work in the coffee production chain.

Another highlight is the Coffee Children at School Program, which began in 2003 with the objective of setting up Digital Laboratories, with computer equipment and internet access, counting on the educational support provided by an education specialist hired by Cecafé. In total, 137 Digital Laboratories were installed in 95 coffee growing counties, in addition to 1.37K computers (10 computers per room), 116 of them with Internet access, with an updated investment of approximately R $ 9 million.

Cecafé, as a legitimate representative of the export sector and a partner for producers and the industry, follows the global trends and understands the need for articulation between all the production chain links. The Council’s Code of Ethics and Conduct demonstrates the export sector commitment to further expand successful socio-environmental projects and continue to promote the image of Brazilian coffee agribusiness in the world.

Nelson Carvalhaes – Chairman of the Brazilian Exporters Coffee Council
Marcos Matos – CECAFÉ CEO
Lilian Vendrametto – CECAFÉ Sustainability Manager