VII PANAMERICAN MILK CONGRESS
From 14th to 18th of March 2000
THE ECONOMIC BLOCKS AND THEIR INFLUENCE IN THE COMMERCIALIZATION OF MILK AND MILK PRODUCTS
the successful European Union and the difficulties faced by the Mercosur
Almir José Meireles
President of the Brazilian Long Life Milk Association
International trade already existed before the establishment of economic blocks and it will remain, even if these blocks disappear in the future. The ideal situation would be having no restrictions in the trade between two countries, no matter their location on the globe. However, today, the economic blocks are a reality and the matter is: what sort of influence they exert on the commercialization of milk and dairy products? In this presentation we are going to establish a parallel between the European Union, the best succeeded economic block to these days, and the Mercosur, a block that has been going through a lot of trouble to make itself a reality. Finally, we are going to evaluate the feasibility of other Latin-American countries joining the Mercosur.
The European Union is the result of a long integration process among countries that, tired of bloody internal separation in the first half of the 20th century, decided to adopt a policy of increasing solidarity and integration. Having gone over three steps in their integration: Free Trade Zone, Customs Union and Common Market, the European Union is moving towards, facing difficulties of course, the monetary union, the last step to the constitution of a Political Union that would be con-substantiate in a Federation of States. But, all that has been made possible because those responsible for the idea of integration among the European countries knew exactly what they wanted to build.
By signing the Treaty of Rome, which created the European Economic Community in 1957, the signatory countries – West Germany, France, Italy, Belgium, Holland and Luxembourg – clearly established: "The mission of the Community is to promote, by establishing a common market and by the progressive approaching of the economic policies of the State Members, a harmonious development of the economic activities, a continuous and balanced economic expansion, a higher degree of stability, a fast increase in the standard of living and closer relations among the integrating States. "
This purpose never changed - even when other countries joined the Community”.
In order to reach such a broad purpose with such complex implications, some guidelines, on which the action of the Community should concentrate, were established. And these guidelines allowed the European Union, a Community that has been successfully developed over the past forty-three years; reach its current stage:
- elimination of all customs rights and goods Import / Export quantitative restrictions, as well as all the measures with similar effect among the Member States;
- establishment of the Common Customs Duties and a Common Trade Policy regarding countries outside the Community (third countries);
- elimination of obstacles to the free movement of people, and free circulation of services and capitals among the Member States;
- adoption of a Common Policy regarding Agriculture;
- establishment of a regime that guaranties a non-distorted competition in the common market;
In this presentation it is important to highlight the guideline that established the adoption of a Common Agricultural Policy, which aimed fundamentally at: (i) the increase in agricultural productivity, (ii) the market stabilization, (iii) the security guarantee if the supplies, (iv) the acquisition of reasonable prices for the consumers and, specially, (v) the increase of the standard of living for the rural population. The European Union is the biggest producer of milk in the world, and the member countries reached this position mainly due to the implementation of a Common Agricultural Policy. The European Union has not become the biggest block exporter of dairy products in the world due to the initiative of producers of milk and its derivatives, but due to the existence of a Policy aiming such achievement.
They managed to reach such situation because the European Union, since it was an Economic Community, regulated its conduct on protecting the milk producers: (i) guaranteeing minimum prices to these producers, fixing them, initially, based in the production costs of those most inefficient producers; (ii) imposing import taxes on third countries, guaranteeing the preference for products of the member countries; and (iii) paying subsidies to export in order to make the products of the community competitive enough in the global market. At last, milk production quotas were established in order to avoid the elimination of less efficient member countries and stock excesses subsided by the Union’s resources.
It is obvious that in the European Union case, the establishment of the economic block influenced positively the commercialization of milk and its derivatives. But it is necessary to highlight that this has been done inside a highly protectionist political scene and it has been reasonably accepted by the rest of the world. In order to re-build Europe after the Second World War all measures were well accepted and they deserved the approval of the other countries. Even of the United States, because they were engaged in protecting their own agriculture from occasional external attacks. This position, by the way, has been re-evaluated because the American dairy products, for example, are becoming more competitive than those of Europe.
The European Union Common Agricultural Policy has as its basis the transference of resources from the urban to the rural sector. It has succeeded because the urban sector accepts this sacrifice hoping to have less trouble with over population in the big cities in the future. In the contrary, without the subsidies, the milk producers, for instance, would have to abandon the countryside due to lack of competitive incentives in comparison to producers in other countries or economic blocks. On the other hand, the milk producers are subject to strict quality criteria that, it is important to highlight, have evolved a great deal since the establishment of the Community. There is, still, a nonflexible quota system, which punishes those that dare to produce more milk than they have been authorized to. As usual, there is a price to be paid for success.
It is not by chance that the old European Economic Community and the current European Union have dreamed about the integration of the countries in Latin America. But, unfortunately, the efforts by the Latin-American countries towards the integration have constantly failed. The Latin-American Free Commerce Association – ALALC, created in the 60’s, disappeared in 1980; the ALADI – Latin-American Integration Association, established to replace the former, has achieved little progress and finally, the Mercosur, even limited to four countries in the continent, has been giving signs of exhaustion. Why are there not many hopes that the Mercosur is the embryo of a broader and broader Latin-American integration ?
In order to answer that question, it is necessary to investigate why the block has not achieved a structured insertion in the international market since the customs union was put into force on 1st January, 1995, for negotiations between Brazil and Argentina and extended in January 1996, including Paraguay and Uruguay. In the first place, when these four countries signed the Asuncion Treaty, in 1991, establishing the Common Market of the South, the so-called Mercosur, they were all coming out of fairly violent, but always intolerant and nationalist, military dictatorships. Therefore, until the mid 80’s, the integration was far from being an ideal enjoyed by the region.
Due to this political scenario, the Mercosur was preliminarily seen as an understandable device to strengthen democracy in the signatory countries, reasonably, as the happenings in Paraguay showed in 1997. But without having developed a deeper feeling of economical solidarity and without having lived in a homogeneous context, as the European countries were when the European Community was established, the four countries threw themselves into the adventure of integration conceptually ill-equipped. Therefore, the impression that unprepared politicians aiming at self-promotion created the Mercosur still remains.
When it comes to milk specifically, it is reasonable to ask what has been the experience of the dairy sector in these four countries, since the Customs Union was put into force in 1995 The trade of dairy products between Argentina and Uruguay, two exporter countries, and Brazil and Paraguay, two importer countries, took place before the constitution of the Mercosur, obviously. However, the common knowledge of the dairy sector reality in each country, as a basis for the construction of an economic block, was superficial and insufficient. On the other hand, most of the measures adopted, which guaranteed the success of the milk activity in the European Economic Union, did not deserve any attention in the Mercosur.
If the constitution of the European Economic Community was taken as an example and inspiration to the Mercosur, the first thing that the founders of the latter forgot were the teachings of the former, recognizably victorious. To make matters worse, the Mercosur arose in a world where the protectionism started to be accused by the first world countries, led by the United States, of being an intolerable and outdated practice and so, pointed out as the main reason for the hindrance of the underdeveloped countries. However, such protectionism is still very strong in the agriculture of developed countries, having played an important role in the process that led to the success of the segment in those countries. It is also good to remember, that the refusal in discussing such matter was the main reason for the failure of the World Trade Organization meeting in Seattle, USA, in the end of 1999.
Hypocrisy aside, the fact is that the Mercosur was born without having implemented protective devices for either the agriculture in general or for the milk particularly. Therefore, without the funds to guarantee minimum prices for the block’s milk producers, without resources to subsidize the companies against international competition, without establishing production quotas and without an agreement ruling exception import taxes for import from third countries, it is not a surprise at all that the Mercosur has not achieved the same results of those of the European Union. And, to complete the troubled picture, the instability and lack of integration of the economic policies of the member countries, intensified the imbalance and arguments among them. We can highlight, in this case, the exchange devaluation that came into force in Brazil in January 1999.
It is true that the trade opening leads to modernization efforts and that, normally, it generates unequally distributed risks and unequally used opportunities too. In the Mercosur case, the creation of the block did not have a positive influence in the commercialization of milk and its derivatives; still, some have taken a better advantage of the opportunities. But, the milk producers in Argentina and Uruguay are unhappy with the prices received and they blame their bad situation on the Brazilian exchange devaluation in 1999; milk producers in Brazil accuse Argentinian and Uruguayan companies of Dumping practice, because they sell powdered and Long-Life milk in Brazil at prices lower to those practiced in their own markets; while the milk producers and dairy industries in Paraguay claim that they are running the risk of not resisting the competition of other member countries, when the adjustment taxes that protect them are reduced to zero.
Therefore, in the dairy sector, the Mercosur reached unanimity in terms of unhappiness and discomfort. It is natural that everybody is suspicious of its legitimacy as a regional economic block and that it will have objective conditions to promote development and social justice in such distinct communities, even if, for the time being, the number of member countries is only four. Therefore, when it comes to milk and its derivatives, the expectations, as seen so far, are not very encouraging. If the countries that comprise the Mercosur do not review their positions and try to re-construct it on new basis, another attempt of integration is bound to fail. On the contrary, the European Union will continue to search for advantages for the society of the member countries, specially for that part, that even being small, still keeps living on agriculture, including the milk producers.
The first step the Mercosur must take is that of creating devices to protect the dairy sector in the member countries against the subsidies generously given to milk producers and to the export of dairy products in Europe and in the United States. Without the adoption of a high tax by all the members of the block, which increases the price of import products coming from countries outside the block, hardly will a sense of solidarity and identification of the real competitive threat be created. Secondly, it is necessary to identify the anxieties and difficulties that worry milk producers in the member countries. If they want to use the cost of milk production in each country or region as the only parameter to mark out negotiations, the result will be the perpetuation of the conflicts. Finally, if that is the case, one must establish quotas for the trade of dairy products among the member countries, what, to a certain extent, will regulate the milk production in each country. It might be a high price to pay, but one does not achieve success in the long term without having made any sacrifice in the present. The European Union has never been all roses. There, the thorns are numerous too.
The Mercosur has to be thought as a future exporter block of dairy products. Argentina and Uruguay have to stop using Brazil as the only destination for their exportable exceeds and for those occasionally generated by crisis in their internal markets. Such exports mess up the neighbor market without establishing any permanent bonds. Brazil has always been a great importer of dairy products and, it will probably continue needing to complement its production with imported products. It is natural that Argentina and Uruguay provide the neighbor country with goods instead of it being provided by third countries. But it is necessary that they have in mind that they belong to an economic block and, being so, they must observe certain rules and commitments to the long term. It was observing such rules and commitments that the European Union achieved success.
If the internal basic matters are evaluated, the Mercosur might have a positive influence on the milk activity of the member countries and even become an important alternative for a broader regional integration. Under the current situation, any attempt of other countries to join the block is bound to failure. The dairy sector is complex and sensitive to big changes because the formation of high productive milk herds takes many years. The production of milk with international quality and the institution of in bulk collecting systems in the traditional milk areas take investment and time. And, we cannot do anything without financial resources at the appropriate amount. Therefore, the challenge for the milk producers in the Mercosur is to make the sector a priority for their Governments and not only a mere exchange currency in the negotiations inside the block.
The Federación Panamericana de Lechería, the FEPALE, is the appropriate forum for the milk producers and the dairy industries, to get organized and think over the dairy sector in Latin America in order to re-sketch its future on a more solid and consensuous basis according to the reality of the member countries. The best way of predicting the future is by building it, because the future is the result of the decisions we make now and of the actions we take to turn such decisions into reality. Ä