(First published by Prima Markets, January 2026) The EU has approved the controversial EU-Mercosur trade deal after a mammoth 25 years of negotiation. The deal has knock-on effects for multiple agricultural sectors in Europe, and ethanol is high on the list because of the risk of Latin American ethanol and maize producers flooding the market with cheap product.
The deal will create the world’s largest free-trade area, as the EU and Mercosur blocs effectively merge under the agreement to create an areas including around 700mn people. Mercosur will remove duties on 91% of EU imports including cars, machinery, chemicals and pharmaceuticals, and the EU will offer duty-free-access to Mercosur’s beef, poultry, sugar, and ethanol.
The deal introduces a duty-free quota of 450,000 t/yr of ethanol for use in the chemical industry and a quota of 200,000 t/yr for all other uses, including fuel blending. According to the European Commission (EC), 4mn t/yr of the total 6mn t/yr of ethanol consumed in Europe goes to the fuel blending sector.
There are clear winners and losers from the deal. Ethanol producers, which have campaigned vehemently against the agreement, fear that it puts the European industry at risk of becoming uncompetitive. But the petrochemical industry, for which the EC earmarked the largest share of duty-free ethanol imports, is celebrating the agreement, arguing that it will foster investment and diversify supply chains.
European ethanol industry association ePURE continues to oppose the deal, arguing the 25 years of negotiation have not improved the final outcome. The group commented that “The European Commission ignored repeated warnings from the sensitive agricultural sectors like European bioethanol producers and has now offered Mercosur countries, in reality to Brazil, a huge share of the EU’s ethanol market. In doing so, the EU is putting at risk European biorefineries producing food, feed, fuel, fertilizers and much more.”
The EU did attempt to address some of the concerns from disgruntled sectors when MEPs last month approved a safeguard clause for the EU-Mercosur draft agreement to offer protection to sensitive agricultural products. Included on the list were corn and ethanol from Argentina, Brazil, Paraguay and Uruguay. The amendments outline how the EU could suspend tariff preferences on specific agricultural products designated as sensitive if imports begin to threaten EU producers.
The European parliament stated the EC should be required to launch an investigation if volumes increase by more then 5% YoY compared with a three-year average under the preferential terms of a sensitive product, or if prices drop by 5% YoY. If such an investigation finds that imports have caused a clear deterioration in the economic condition of a sensitive industry, a safeguard may be put in place. The original proposal suggested 10% thresholds.
But ePURE thinks that the measures fall short of the mark, commenting that “The last-minute EU-Mercosur ‘safeguards’ aimed at placating farmers are cosmetic at best and when it comes to ethanol imports will be ineffective. The procedures are complex, thresholds high, and reaction times slow.”
The amendments are also seen as insufficient by the leaders of Europe’s agricultural sector. nine industry associations called for a rejection of the Mercosur deal, with five of the groups either directly or indirectly connected to ethanol production. In a joint statement, the associations said that the deal “would risk further destabilising and already fragile agricultural sector and erode trust in European policymaking.”
Crop imports from South America are likely to come under heavy scrutiny amid concerns about deforestation and the EU Deforestation Regulation. Crop-based products must be proven not to contribute to land-use change to qualify for EU green transport targets. While much of the focus of the scrutiny would be on south American soybean production, corn could be seen as posing a similar risk of land-use change. South American corn acreage has been relatively stable in recent years, but opening the European market to South American producers could incentivise expansion.
European environmental policy could reduce the risk of South American producers flooding the European market. The agreement includes a ‘rebalancing mechanism’ under which Mercosur producers that want to access the EU market must align more closely with EU sustainability standards, theoretically levelling the playing field on environmental compliance costs.