Impact of Free Trade Agreements on the Colombian Beef Sector

Colombia negotiated bilateral Trade Agreements (TAs) with the United States and with the MERCOSUR region (Argentina, Brazil, Paraguay, and Uruguay). Colombian cattle and beef interest groups argue that TAs hurt the local beef supply chain. We employ a partial equilibrium framework to assess the impact of these TAs on the welfare of cattle producers, beef marketers and meat consumers in Colombia. Our results suggest that with free imports of chicken parts from the U.S, beef consumption and retail prices of beef both decrease and the derived demand and prices of fed cattle decrease. With beef imports from the MERCOSUR region, domestic beef prices and beef production fall, but total beef consumption increases. Overall, consumers are better off and there are net gains to society with free trade agreements. These net gains tend to increase over time, as Colombia gradually decreases the tariff for imported beef. We identify the reduction in marginal costs required to compete with imported beef, primarily from MERCOSUR. We argue that this is possible because the elimination of trade barriers is gradual and the Colombian beef supply chain can compete with imported meats with an annual reduction of marginal costs between 2 and 4%.