A Deductive Ex-Ante Framework for Assessing Risks and Benefits of the EU–Mercosur Agreement for Agri-Food Producers and Processors

In the absence of ex-post empirical evidence on the implementation effects of the EU-Mercosur agreement, assessments of expected risks and benefits for the agri-food sector must rely on ex-ante reasoning rather than statistical identification. This paper develops a deductive ex-ante framework to assess how partial market integration under EU–Mercosur may affect the prices and profitability of two groups: agri-food processors and agricultural producers. Methodologically, we formalize a two-market setting (final food products and agricultural raw materials) and derive comparative-statics implications for microeconomic profitability indicators that guide agents’ choices. The main propositions are as follows. First, the integration of the sourcing base for processors is likely to increase the relative profitability of processing by improving the ratio of output to raw-material inputs and, crucially, by widening the price wedge between final food prices and agricultural input prices. Second, the same mechanism implies that agricultural producers in the EU face greater downside risk, as increased competition on the raw-material market tends to depress farm-gate prices; the resulting revenue effect is unlikely to be fully offset by higher sales volumes in the short run. Third, these asymmetric effects rationalize the divergence of perceived risks and benefits across processors and farmers, even when both operate within the same integrated market environment. In addition, we highlight a complementary risk channel: market integration can affect not only price levels but also price volatility in raw-material markets, which may further increase downside risk for farms. The proposed framework provides a disciplined basis for scenario and simulation analyses relevant to agricultural and trade policy, and yields testable predictions for future ex-post evaluation.