EU-Mercosur and CAP Reform: the search for European competitiveness

Introduction

The Common Agricultural Policy (CAP) is among the most contested pillars of European policymaking. High implementation costs, increasingly stringent sustainability requirements linked to the European Green Deal, and limited support for small and medium-sized producers have fuelled widespread discontent within the agricultural sector. Recurrent farmer protests across Europe reflect growing frustration with a reform trajectory perceived as disproportionately burdensome and insufficiently compensatory.

These tensions have been further exacerbated by the revival of the EU–Mercosur trade agreement. Viewed by many European farmers as intensifying competitive pressures, the deal has reignited concerns over unfair competition from agricultural imports produced under less stringent environmental and labour standards. If ratified, the agreement would become the largest trade deal ever concluded by the EU, eliminating tariffs on over 90% of traded goods across a market of nearly 700 million people.

This article offers a critical assessment of the EU–Mercosur agreement within the European Union’s broader attempt to assert economic and strategic relevance amid rising geopolitical uncertainty, marked by renewed protectionism in the United States and China’s growing control over critical supply chains. It argues that this push for trade liberalisation risks deepening the structural tensions between the CAP and the environmental commitments of the European Green Deal, raising fundamental questions about policy coherence, competitiveness, and the long-term sustainability of the European agricultural model.

The Common Agricultural Policy: the long strive for perfection. 

Established in 1962, the Common Agricultural Policy (CAP) constitutes the European Union’s primary institutional framework for supporting agricultural production and ensuring food security. Nonetheless, while the European Union defines the overarching institutional framework, by setting conditionalities and strategic objectives, it is the Member States that translate these principles into operational instruments, in accordance with the provisions set out in their respective National Strategic Plans (Milano, 2026).

Initially conceived to increase productivity, stabilise markets, and guarantee fair living standards for farmers (Art. 39, TFEU), the CAP has undergone successive reforms over the past six decades aimed at progressively modernising the policy, improving the allocation of public resources, and integrating broader economic, social, and environmental objectives (European Parliament, 2025). 

One of the most consequential turning points in the evolution of the CAP was the 1992 reform package introduced by the then European Commissioner for Agriculture, Ray MacSharry. This reform marked a structural shift from market-based price support mechanisms towards a system centred on direct income support for farmers. Direct payments were introduced and allocated primarily on the basis of cultivated land area and livestock holdings, fundamentally reshaping the incentive structure of European agriculture. This reorientation contributed to a reduction of approximately 30% in CAP expenditure, which subsequently accounted for around half of the total EU budget (Malheiro, 2024). More broadly, the 1992 reform inaugurated a phase in which concerns over sustainability, food safety, and environmental externalities gained prominence, influenced by the principles of Agenda 21 and reinforced by the outbreak of bovine spongiform encephalopathy (BSE, also known as Mad Cow Disease) (Asian Development Bank, 2012).

By the late 1990s, however, the CAP continued to face mounting criticism for its limited capacity to enhance the competitiveness and structural resilience of European agriculture, particularly in light of persistent rigidities in employment and production structures. In response, a second pillar was formally introduced in 1999. Rural development measures expanded the scope of the CAP beyond production support, aiming to address the socio-economic and territorial challenges of rural areas through targeted measures focused on diversification, environmental management, and regional cohesion.

Despite repeated attempts at reform, the CAP remains one of the most controversial components of the EU policy framework. Although it continues to absorb a substantial share of EU public expenditure (approximately one third of the EU budget, amounting to €386.6 billion for the 2021–2027 framework), the policy is widely criticised for reinforcing structural asymmetries within the agricultural sector. Direct payments (70% of CAP expenditure) are allocated on a per-hectare basis, resulting in a concentration of financial support among large-scale commercial producers (Scown et al., 2020). Not only these beneficiaries are often located in regions with incomes above the EU median, but, because of their intensive cultivation methods, they are to be regarded as one of the principal contributors to greenhouse gas emissions. According to Greenpeace (2026), the wealthiest 1% of industrial farms receive approximately 40% of total direct payments. This distributional imbalance places small and medium-sized producers, particularly those engaged in organic or agroecological practices, at a structural disadvantage. Between 2007 and 2022, the number of small commercial farms declined by 44%, falling to 2.4 million units, while over the same period the number of large-scale farms increased by 56%. This process of consolidation has been especially pronounced in Belgium, Denmark, France, Germany, Luxembourg, the Netherlands, and Slovakia (Greenpeace, 2024). 

Within such a delicate equilibrium, the approval of the European Green Deal (2020) by the European Commission and its ambitious objective of achieving climate neutrality by 2050 has imposed increasingly stringent environmental standards on farmers. As a matter of fact, its conjunction with the 2021 reform of the Common Agricultural Policy exposed farmers to both heavier administrative burdens and higher production costs, which in the case of small and medium-sized producers are often not compensated by market prices (Milano, 2026). Under this new policy framework, a range of environmental strategies have been introduced, including a 50% reduction in pesticide use by 2030, the allocation of at least 3% of agricultural land to non-productive elements in support of biodiversity, and landscape preservation measures such as bans on cutting trees and hedgerows during bird breeding and rearing seasons. While these objectives align with the EU’s broader environmental ambitions, their cumulative effect has been to constrain productive capacity and increase compliance costs at farm level.

Farmers are thus confronted with a double burden: rising input and adjustment costs on the one hand, and declining output per unit of land on the other. Moreover, the implementation of these measures often requires the adoption of new techniques and practices without commensurate technical support or financial compensation. This imbalance has fuelled perceptions within the agricultural sector that environmental objectives are being pursued in a top-down manner, insufficiently attuned to economic viability and the realities of agricultural production.

Under the reformed CAP, the system of direct payments is conditional upon compliance with a set of requirements defined under the Statutory Management Requirements (SMR) and the Good Agricultural and Environmental Conditions (GAEC). The effective disbursement of payments occurs only insofar as farmers’ performance aligns with the standards established in the National Strategic Plans (Cuadros-Casanova et al., 2023). Such a complex and conditional architecture provides limited incentives for farmers to adopt more sustainable practices (Foote, 2025). Moreover, the European Court of Auditors reports that, despite the ‘green turn’ characterising the strategic and operational agenda of both the Single Market and the CAP, the policy remains far from achieving the sustainability objectives set out in the European Green Deal and has, to date, failed to deliver substantial environmental improvements (European Court of Auditors, 2024). 

Such an outcome may also be shaped by the system of multi-level governance that characterises the implementation of the CAP, which makes alignment between national and supranational objectives particularly challenging. Under the current framework, the operational flexibility granted through the National Strategic Plans allows individual Member States to determine the instruments for implementing the CAP in line with domestic policy priorities and perceived needs. However, a study by Frank and Schanz (2025) demonstrates that, although national plans often formally align with the stated objectives of both the CAP and the European Green Deal, this alignment does not always translate into effective policy action. In several cases, with France being a notable example, policy rhetoric has not been matched by adequate operational instruments, resulting in limited on-the-ground impact. More broadly, the study highlights how increased national discretion has tended to produce low-transformative ambitions, rather than fostering meaningful structural change. This dynamic is further reinforced by capacity constraints at the national level, where insufficient technical expertise and administrative capabilities hinder the effective implementation and follow-through of CAP measures (Sterly, et al., 2024). 

Competitiveness Wanted

The current geopolitical conjuncture has generated growing concerns for the European Union and the Single Market, particularly with regard to economic competitiveness and geopolitical relevance. The renewed threat of tariffs under the Trump administration, combined with China’s restrictions on exports of critical raw materials, has plunged Europe (and the global economy more broadly) into a climate of heightened uncertainty. Speculation emerging from the global arena has found concrete validation in the 2024 Draghi Report on the future of European competitiveness. The assessment presented by the former President of the European Central Bank raises significant alarm, highlighting structural vulnerabilities within the EU economy. The report warns that Europe’s excessive reliance on external suppliers for key inputs has become a systemic risk. In response, Draghi calls for a more assertive external economic strategy, centred on the diversification of supply chains, the reduction of strategic dependencies, and the strengthening of partnerships through targeted trade agreements and foreign direct investment with resource-rich countries (Di Marco, 2024). Within this framework, large-scale trade agreements such as the EU–Mercosur deal emerge as instruments through which the EU seeks to reconcile competitiveness, resilience, and geopolitical relevance.

EU-Mercosur: is the finish line on the horizon?

When negotiations with the South American bloc composed of Argentina, Brazil, Paraguay and Uruguay began in 1999, few could have anticipated that, twenty-five years later, the future of the EU–Mercosur trade agreement would still be under discussion. It was believed that an agreement poised to create one of the world’s largest free trade areas—accounting for roughly 20% of global GDP (La Jornada, 2026) and encompassing 31 countries and nearly 700 million potential beneficiaries—would, at least in theory, appear highly attractive to two regions seeking to reduce strategic dependencies, diversify trade relations, and strengthen their economies within the framework of sustainability and transition to climate neutrality.

At its core, the agreement envisages the gradual elimination of tariffs on more than 90% of traded goods over a fifteen-year period. For the EU Single Market, this would translate into an estimated 39% increase in exports (European Commission, 2026), particularly for products such as wine, cheese and automobiles, while granting European firms access to a market of approximately 280 million consumers and to strategic raw materials, including lithium (Il Post, 2025). For Mercosur countries, the agreement would significantly expand access to the European agricultural market and open new avenues for foreign direct investment, including €1.8 billion mobilised under the Global Gateway framework.

European Commission President Ursula von der Leyen has framed the agreement as a clear “win-win” deal. On 9 January 2026 in Asunción, Paraguay, thanks to Italy’s green light, she formally signed the agreement alongside Mercosur leaders. The date was presented as symbolically significant: a “historic day” for the EU, which von der Leyen described as a strategic response to mounting external pressures, particularly from the United States. Notably, the signing coincided with President Trump’s announcement of additional tariffs targeting countries providing military support to Greenland (Centenera, 2026).

Despite the political momentum, the agreement has not yet fully cleared the institutional hurdles required for implementation. While ratification by Mercosur national parliaments appears largely assured, the European Parliament remains a key point of contention. On 21 January, by a narrow margin  (334 votes in favour, 324 against, and 11 abstentions) the Parliament approved a motion requesting the European Court of Justice to review whether the agreement could be provisionally applied prior to ratification by all Member States, and whether it undermines the EU’s capacity to uphold environmental protection and consumer health standards. This decision has unsettled many policymakers, who fear that further delays could strain relations with Mercosur partners and erode the EU’s credibility as a reliable trade actor, particularly when compared to more flexible or “laid-back” commercial partners (Meredith & Clarke, 2026).

It is precisely this tension that lies at the heart of Europe’s internal divide, with France emerging as the leading opponent of the agreement. According to Eurostat (2025), France is the EU’s largest agricultural producer, with an output value of €88.3 billion, followed by Germany (€75.5 billion), Italy (€70.2 billion) and Spain (€68.7 billion). While Pedro Sanchez and Friedrich Merz view the EU–Mercosur deal as a cornerstone of European competitiveness and a necessary step towards reducing the Single Marker’s trade dependencies, and Giorgia Meloni has expressed support following concessions benefiting its export sectors, President Macron has maintained firm opposition, despite mounting domestic criticism.

Historically, delays in the negotiation process have been driven largely by European resistance, particularly from Green parties, agricultural stakeholders and their lobbying networks. In recent years, farmers across Europe have repeatedly mobilised, bringing tractors into the streets of Paris, Milan and Brussels to defend what they frame as European food sovereignty. These protests reflect a deeper structural concern: while European farmers face rising production costs, increasing bureaucratic complexity and ever-stricter environmental standards, the EU market would be opened to agricultural imports, such as soy, honey, beef, poultry, rice and sugar  produced under regulatory frameworks widely perceived as less stringent.

The fear is twofold. First, that South American agricultural products could enter the European market at significantly lower prices, undercutting domestic producers; and second, that differences in production standards could compromise the high levels of food quality and consumer protection enshrined in EU regulation. Meat production, a flagship sector for both Argentina and Brazil, has become a focal point of these concerns. A European Commission report (2024/8087), for instance, concluded that Brazil has not been able to guarantee the non-administration of estradiol, a hormone banned in the EU since 1998. Environmental concerns have also been raised, particularly by France, following an Élysée-commissioned study which warned that the agreement could further accelerate deforestation in Brazil, driven by the expansion of export-oriented intensive agriculture.

In response to these criticisms, the European Commission has sought to reassure consumers and producers alike, emphasising that the agreement incorporates a series of safeguard mechanisms. These include the exclusion of particularly sensitive products, reinforced sanitary and phytosanitary controls at EU entry points, closer alignment of production standards, and stricter monitoring of pesticide use, particularly substances prohibited under EU law.

What’s next?

In light of the dynamics outlined above, it is clear that the EU–Mercosur agreement has taken on meanings that extend far beyond those of a conventional trade deal. The current stalemate within the European Parliament has made it increasingly likely that ratification will be delayed by months, if not years. Following the forthcoming opinion of the European Court of Justice, the Parliament will be required to vote on the agreement once again; yet it remains uncertain whether provisional implementation would be legally and politically feasible. Once more, the process hinges on judicial interpretation rather than political consensus.

Such prolonged uncertainty, however, risks placing a significant burden on the European Union’s credibility. The continent’s contested hesitations across multiple policy fronts are increasingly testing the standing of the Single Market as a reliable and decisive economic actor. As Meredith and Clarke (2026) argue, the strength of a power lies not merely in its ability to negotiate trade agreements, but in its capacity to implement them consistently, credibly and at scale.

The EU thus finds itself navigating a fundamental trade-off. On the one hand lies the imperative to reclaim geopolitical relevance and enhance strategic autonomy in an increasingly fragmented global order; on the other, the commitment to uphold Europe’s role as a global benchmark in environmental protection, sustainability and food safety. The EU–Mercosur agreement crystallises this tension, exposing the limits of a policy approach in which trade, agricultural and environmental objectives remain only partially aligned.

Ultimately, the EU–Mercosur debate portrays Europe at a crossroads. Its long-term resilience will depend on the Union’s ability to design more coherent and mutually reinforcing policies, capable of reconciling competitiveness with environmental sustainability, while strengthening protections for European farmers and safeguarding consumer trust. Only through such policy coherence and better coordination of multi-level governance can the EU credibly pursue both strategic autonomy and its green and social ambitions.

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