(Brussels, January 20, 2026) — A free trade agreement between the European Union and Mercosur (Argentina, Brazil, Paraguay, and Uruguay) has been finalized, aiming to ease trade and reduce costs through lowered tariffs and restrictions.
The agreement, years in the making, seeks to boost economic ties between the two regions but has raised concerns among European farmers about potential competition from South American agricultural products.
- The EU and Mercosur have reached a free trade agreement after years of negotiation.
- The deal includes a reduction in duties on fertilizers, a cost that has risen sharply since 2021.
- Despite the fertilizer duty reductions, the impact on European fertilizer prices is expected to be minimal due to limited trade with Mercosur countries.
- The EU Commission may modulate the Carbon Border Adjustment Mechanism (CBAM) to protect European companies facing stricter environmental regulations.
The agreement will facilitate trade between the two regions with a significant reduction in duties and restrictions. While industrial and service sectors are expected to benefit, European farmers have expressed worry over the potential influx of lower-cost agricultural products from South America.
To mitigate some concerns, the agreement includes a reduction of duties on fertilizers, a significant cost for farmers that has increased substantially since 2021. The EU Commission stated it “will temporarily suspend the remaining duties on ammonia, urea and, where necessary, some other fertilizers,” with the intention of implementing the measure as early as 2026.
Brussels also plans to adjust the Carbon Border Adjustment Mechanism (CBAM), which imposes charges on CO2 emissions from manufacturing industries, including nitrogen fertilizers. This adjustment aims to protect European companies, which face more stringent environmental regulations than their non-EU competitors, and the EU Commission has the option to suspend the CBAM on fertilizers if the market impact is excessive.
Limited Impact on Fertilizer Prices
Despite the duty reductions, the impact on European fertilizer prices is expected to be modest. The European Union currently imports very few fertilizers from South America, and virtually no nitrogen fertilizer, relying instead on supplies from North Africa and Eastern Europe.
In 2022, the EU imported 5.1 million tons of nitrogen fertilizers, representing around 45% of its needs, and satisfied 46% and 58% of its requirements with imports of phosphorus and potassium, respectively (Source: Fertilizers Europe/Eurostat. Data refer to 2022).
The largest suppliers of fertilizers to the EU are Russia (worth 2.5 billion euros), Egypt (1.8 billion euros), and Morocco (1 billion euros), all countries with low energy costs and access to raw materials. Algeria, the United States, Canada, Norway, Trinidad and Tobago, Türkiye, and Oman also contribute significantly to the EU’s fertilizer supply, but none of the Mercosur countries are major players in the sector.
Based on these figures, analysts believe it is unlikely that the price of fertilizers will fall in 2026 as a result of the Mercosur agreement. Price increases are more likely to be driven by fluctuations in gas prices or new geopolitical tensions, particularly with Russia or in the Middle East.
Why It Matters
The EU-Mercosur agreement represents a significant shift in trade relations between the two regions, potentially opening new markets for European goods and services. However, the deal’s impact on the agricultural sector remains a key concern. While the reduction in fertilizer duties is a welcome step, its limited effect on prices underscores the EU’s continued reliance on other regions for essential agricultural inputs. The CBAM adjustment highlights the EU’s commitment to environmental standards, but also raises questions about the competitiveness of European industries in a global market.
