Regional

Items

• MERCOSUR: Deathknell sounds?

  08 January 2009 Hits: 261

  The Southern Common Market (Mercosur in the Spanish acronym) - comprising Argentina, Brazil, Paraguay and Uruguay, with Venezuela about to become the fifth full member - is facing two problems. Its first, and more serious, difficulty is that Brazil has outgrown the organisation. The second is that the organisation has become unable to resolve trade issues and is now seen by businessmen as just a platform for foreign policy posturing. 

  The smaller Mercosur countries' fears moved up a notch when Brazil and the EU held a second bilateral summit on 22 December in Rio de Janeiro. Pointedly, the summit was not a Mercosur-EU summit even though it followed a new Caribbean and Latin American Development and Integration Summit in Bahia, Brazil on 16 December.

  The main feature of the Brazil-EU summit was the publication of a new Brazil-EU Joint Action Plan.This plan highlighted Brazil's foreign policy ambitions: security, energy and the environment all featured well ahead of trade. More importantly Brazil and the EU committed themselves to a joint position at the forthcoming G-20 summit on the financial crisis in London and to restart the Doha trade liberalisation round. Both these policies go against policy positions staked out by President Hugo Chávez of Venezuela and President Cristina Fernández of Argentina.

  More importantly, the Brazilian private sector has made it clear that Brazil should choose a deal with the EU over continuing membership of Mercosur. The EU's negotiations with Mercosur over a free trade agreement stalled in 2004 and since then the EU has made it clear that it is really only interested in a deal with Brazil and, perhaps, Uruguay. In 2007, under pressure from Uruguay, Brazil promised that it would not negotiate a bilateral deal with the EU, but Brazilian businessmen now want the government to renege on that commitment.

  The government of President Lula da Silva has not yet decided what to do. The Brazil-EU summit did mention the resumption of negotiations with the Mercosur, but the wording was tepid: “both parties [i.e. Brazil and the EU] expressed their willingness to resume negotiations for an Association Agreement between the Mercosur and the EU."

  Brazilian businessmen argue that the arrival of Venezuela as a full member of the Mercosur will complicate any trade deal with the EU. After the Brazil-EU summit, Armando Montero Neto, the president of Brazil's influential Confederação Nacional de Industria (CNI) said that Brazil must adopt a more “ambitious" position regarding trade agreements with the EU. His call was endorsed by Luiz Furlan, president of one of Brazil's most successful companies, Sadia, a meat processor.

  Furlan gave an interview to O Estado de São Paulo on 24 December which pulled no punches about Mercosur. Furlan said that “Mercosur has become partly paralysed and the feeling is that Brazil is shackled [by the group]_ Brazil must reach bilateral agreements. Mercosur's time is up, long overdue." Furlan was Lula's minister for development, industry and trade from 2003 to 2007, so his views carry weight. 

  Paraguay is also annoyed because Mercosur failed at the December summit to resolve two pressing issues: the double tariffs levied on some imports from outside the region and a common code for customs categories. Both issues are particularly important to Paraguay, the poorest country in the group, which has no direct access to the sea and thus has to import goods through its neighbouring partners, which levy their own import tariffs on goods destined for Paraguay.

  • Uruguay
    Uruguay has most to lose if Brazil goes it alone with the EU. Uruguay was thwarted in its effort to start negotiations about a bilateral free trade deal with the US in 2008, but it is still interested in a deal with the EU because it trades more with the EU than it does with the whole of the Mercosur.
    

• AGRICULTURE: Major drought effects

  08 January 2009 Hits: 401

  Argentina, Paraguay and Uruguay are enduring what metereologists say is the worst drought in two generations. The drought will have several effects. The first is that it will restrict exports of agricultural commodities. The second is that it will put pressure on fresh water supplies for urban areas: already Rosario in Argentina is starting to run short of drinking water. The third effect will be to push up inflation rates as prices of fresh foods rise. This effect is likely to be serious, as fresh food prices usually start to fall at the end of the southern hemisphere's summer.

  Stella Carballo, from the Instituto de Suelo y Clima at the Instituto Nacional de Tecnologí­a Agropecuaria in Argentina, argues that it is too early to say that Argentina's climate has changed, but she does admit that the current drought is the worst in70 years.

  The drought in Argentina is serious but not yet disastrous. Farmers in the central agricultural belt were relieved by rains early in the New Year which sprinkled an average of 30mm of water across crops. The problem is that the rains have come too late for a lot of wheat growers and, secondly, that the beneficial effect of the rain was diminished by the resumption of dry, hot winds from the south.

  The drought has already had an effect on the international prices of grains and oilseeds. Prices on the local futures' market have risen by almost 30% since December 2008. Soya processors in Argentina are now paying Arg$830 (US$233) a tonne (/t) for soya, up from Arg$640/t at the beginning of December. In the first full week of the New Year, trading on the Bolsa de Comercio de Rosario, which handles grain contracts, was heavy: on 5 January almost 30,000t of soya were traded, but traders say that this may be only a reflection of pent-up demand following the New Year break. On 29 December, 70,000t had been traded as the price broke through the Arg$800/t mark.

  Uruguay's big dairy industry is reeling from the drought. Héctor Javiel, director of the Sociedad de Productores de Leche de Florida, said on 2 January that the situation was now really difficult and that the government needed to take urgent action. The big dairy lobby, La Mesa de Gremiales Lecheras, which brings together the country's five biggest dairying organisations, said that the industry was in crisis and needed support from government, suppliers and other industries to survive. Without such coordinated support, there could be a chain reaction across the whole of the economy, La Mesa warned.

  The message is getting through. The minister for ranching, agriculture and fishing, Ernesto Agazzi, said that he understood that the dairy industry faced a difficult situation because of the drought. He said that the government was working on schemes to provide fodder for cattle now and get paid for it later and on easy terms.

  The big problem for Paraguay is rising inflation. Already the price of some fresh vegetables - notably lettuces, tomatoes and carrots - has doubled because of shortages caused by the drought. The domestic onion crop has all but failed, forcing the country to import. The low level of the River Paraguay, up which a lot of Paraguay's bulk imports come from means that barges and ships cannot be as heavily laden as usual. This raises the costs of imports, especially fuel which cannot be shipped, as usual, to terminals near Asunción . The government is looking at whether it needs to spend more money on dredging deeper navigable channels in the River Paraguay. In 2008 the government's martime agency spent US$40m on dredging the river. 

  • Parched Argentina
    The rains in Argentina in the key growing months of November and December fell mostly in the semi-arid areas, rather than the fertile Pampa Humida, which stretches across the province of Buenos Aires and into Santa Fe and Córdoba. The drought is worst in these provinces and in Entre Rí­os, Chaco and Santiago del Estero.