Milei Shakes Up Mercosur: Repercussions for the Regional Dairy Market

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.

For Brazil, reliance on external suppliers poses a significant risk in light of shifts in Argentina’s trade policies.