September 23, 2009

Brazilian milk producers expanded an agreement with Argentina to avoid an excessive influx of Argentine dairy products in Brazil.

At a meeting held in Buenos Aires last week, leaders from governments, industry and Argentine producers agreed to include the sales of the fractional product in the bilateral agreement.

At the end of April this year, Argentina accepted a minimum price undertaking and a maximum quota to export dairy products to Brazil.

Threatened by the non-automatic licensing of their shipments, the Argentines agreed to sell powdered milk tonne for the minimum price of US$2200 and restrict their sales to Brazil by up to 3,000 tonnes per month.

But they were reluctant to accept the inclusion of fractionated products in the agreement, and instead used it as the key to increase the monthly quota of the agreement.

Uruguay also took similar commitment to limit its sales to 10,000 tonnes by October this year.

This year, the trade deficit for milk hit US$53 million. In August alone, the deficit amounted US$14.8 million. In 2008, Brazil's trade balance produced a surplus of US$328 million.

The change in the market was caused by the international financial crisis, which reduced the consumption of dairy and led to higher subsidies in Europe and the US.

To resolve the structural issue, the government evaluates two options - consolidating the Mercosul's Common External Tariff (CET) in 28 percent to 11 items, such as milk powder, cheese and whey, and increasing the maximum rate from 31.5 percent to 55 percent by the Chamber of Commerce (Camex).