Pesticide maximum residue limits and Mercosur–EU grain trade

Purpose This study quantifies how regulatory divergence in pesticide maximum residue limits (MRLs) affects bilateral trade between Mercosur countries and the European Union for soybeans and corn, examining both demand-enhancing quality effects and supply-restricting compliance costs simultaneously. Design/methodology/approach We develop dual stringency indices comparing exporters' MRLs with Codex standards and measuring exporter–importer regulatory gaps for specific pesticides used in soybean and corn production. A structural gravity model with country-pair, importer-year and exporter-year fixed effects is estimated using Poisson Pseudo-Maximum Likelihood (PPML) for a biennial Mercosur–EU panel covering 2010–2018. The analysis examines trade probability, import values and unit prices separately. Findings Stricter exporter MRLs relative to Codex standards increase market-entry probabilities and trade volumes, signaling quality compliance. However, when EU limits exceed Mercosur standards, compliance costs reduce trade probability and volumes. Exporters can transfer these costs to importers through higher unit prices. Wald tests indicate that quality premiums offset compliance costs, yielding a statistically neutral net effect on trade values, though individual cost and quality components remain economically significant. Research limitations/implications The analysis period (2010–2018) reflects access constraints to paid data from the Homologa platform. Results apply specifically to standardized commodities (soybeans and corn) between Mercosur and EU. This specificity aligns with literature recommendations on the need for sectoral analyses of non-tariff measures. Practical implications Mercosur exporters can recover compliance costs through price premiums when meeting stricter EU standards. Exporters should develop capacity for multiple regulatory regimes, focusing on key pesticides in grain production. EU policymakers can maintain strict MRL requirements without creating prohibitive trade barriers, as costs transfer through pricing mechanisms. The findings support targeted technical assistance for developing country producers and inform trade negotiations on regulatory cooperation frameworks balancing consumer protection with market access. Originality/value Unlike previous studies that examine either cost burdens or demand shifts in isolation, this research simultaneously captures both dimensions using distinct indices for quality perception and compliance costs. The focus on specific pesticides used in soybean and corn production reduces measurement bias compared to studies using all registered pesticides with equal weights.