Chile’s agricultural policies create limited distortions to agricultural markets, as due to the absence of policies supporting prices, there is almost no market price support (MPS) provided to farmers. The support to producers is one of the lowest amongst OECD countries at 2.5% of gross farm receipts (%PSE) in 2016-18. Support to producers is mostly provided to small-scale farmers, mainly in the form of input subsidies, in particular support to fixed capital formation such as farm level irrigation investments, and the provision of public goods. More than a half of public expenditure is financing general services to the sector, being the development and maintenance of infrastructure (particularly off-farm irrigation works); inspection and control; and agricultural knowledge and innovation system the areas that accounted for 96% of these public investments in the period 2016-18.
Agricultural Policy Monitoring and Evaluation 2019
Chapter 7. Chile
Support to agriculture
Main policy changes
Policy measures continue to target a number of areas: the expansion and more efficient irrigation systems; sanitary and phyto-sanitary control; policy instruments that promote the development of smallholders and indigenous farmers, in particular, through marketing associations; promoting innovation; and sustainable use of resources, in particular prevent degradation of soils.
In 2018, the Agriculture and Livestock Service (SAG) has made progress in modernising inspection processes with the aim of facilitating trade. The Institute for Agricultural Development (INDAP) has focused on facilitating market access through the use of marketing association and cooperatives, which helped to increase the number of vertically integrated smallholders into value chains.
In 2018, a new national government came into power. This government has defined seven agricultural policy objectives for the 2018-22 period: 1) Strengthen territorial rural development; 2) Strengthen small and medium farmers’ development; 3) Improve information systems as well as protecting phyto-sanitary and zoo-sanitary conditions; 4) Increase investments on innovation at national level; 5) Modernise the management of the Ministry of Agriculture and related specialised agencies; 6) Optimise the use, and protect, natural resources, particularly water and soil; and 7) Promote sustainable forestry and agricultural production and adaptation to climate change. These seven objectives are framed under four main policy guidelines: 1) Institutional modernisation; 2) Associativity, focusing on ways to organise farmers; 3) Sustainability, to conserve and protect natural resources; and 4) Strengthen rural development.
Chile continues renegotiation of its association agreement with the European Union, with an agenda that goes beyond the liberalisation of tariffs, with issues like intellectual property rights and environmental provisions. In November 2018, Chile signed a Free Trade Agreement (FTA) with Brazil.
Assessment and recommendations
Agricultural policies in Chile provide low and declining levels of support to producers, mostly in the form of targeted payments or investment support. They do not interfere with market functioning, and domestic prices are aligned with world levels. Government expenditures increasingly focus on ensuring the long-term competitiveness of the sector, through the provision of general services.
Direct payments are mostly provided to small-scale farmers and aim to improve their productivity and competiveness, payments are also provided for recovery of degraded soils for both smallholders and medium/large farmers, and on-farm irrigation systems. Most of the expenditures on general services are allocated on irrigation infrastructure inspection and control, and agricultural knowledge and innovation systems.
While a large part of payments to farmers are targeted towards small-scale agriculture and indigenous farmers, careful attention should be paid to assessing their effectiveness systematically.
As an increasing number of projects and programmes related to agriculture are developed by agencies outside the Ministry of Agriculture, the need for co-ordination across ministries and agencies becomes more important.
Figure 7.1. Chile: Development of support to agriculture
Note: * Share of potentially most distorting transfers in cumulated gross producer transfers.
Source: OECD (2019[1]), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.
Support to producers (%PSE): Support to producers as a share on gross farm receipts (%PSE) declined from 6% in 1995-97 to 2.5% in 2016-18. This support is amongst the lowest in the OECD area and it is provided mainly in the form of direct payments to smallholders. Chile has reduced the potentially most production and trade-distorting forms of support and MPS is particularly low. Most of the support to producers is to input subsidies, in particular to fixed capital formation and input use. Producer prices are practically aligned with world prices (Figure 7.1). Expenditures for general services were equivalent to 4% of the agricultural value added in 2016-18. Total agricultural support was 0.3% of GDP in 2016-18. Support to General services (GSSE) accounted for more than a half of the total support (TSE) in 2016-18. Main drivers of change in the PSE was an increase in production (Figure 7.2). Transfers to single commodities are almost zero and only observed on maize and sugar for 2016-18 (Figure 7.3).
Figure 7.2. Chile: Drivers of the change in PSE, 2017 to 2018
Source: OECD (2019[1]), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.
Figure 7.3. Chile: Transfer to specific commodities (SCT), 2016-18
Source: OECD (2019[1]), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.
Table 7.1. Chile: Estimates of support to agriculture
Contextual information
Chile is a dynamic growing economy in Latin America, experiencing annual growth in GDP of around 4.3% over the period 1995-2018. This relatively stable growth has helped Chile improve the well-being of its population, has reduced overall poverty, and has made it an upper middle-income country with a GDP per capita of USD 24 013. However, inequality continues to be high. Agriculture contributed with 4.2% to GDP, but accounted for 9.3% of employment, reflecting the duality of its structure, where small-scale labour intensive farms coexist alongside a large-scale commercial farm sector. The agricultural sector makes an important contribution to exports, with agro-food exports accounting for 16.4% of total exports of the economy. Chile is a net exporter of agro-food products with a net trade surplus of USD 5 billion in 2017 (Table 7.2).
Table 7.2. Chile: Contextual indicators
Note: *or closest available year. 1. Average of all countries covered in this report. EU treated as one.
Source: OECD statistical databases; UN Comtrade; World Bank, WDI and national data.
Chile is a net exporter of agro-food products (excluding fish and forestry) with a surplus of USD 5 billion in 2017. Chile’s agricultural and agro-food sector has been successful in adding value to the production of primary commodities, and processed products such as wine and fruits. In 2017, 39% of exports were in processed products for consumption and 9% were processed products for further industrial processing in other countries. Agro-food imports are mostly processed products, where 54% are for consumption and 26% for further processing in industry (Figures 7.4. and 7.5).
Figure 7.4. Chile: Main economic indicators, 1995 to 2018
Sources: OECD statistical databases; World Bank, WDI and ILO estimates and projections.
Figure 7.5. Chile: Agro-food trade
Note: Numbers may not add up to 100 due to rounding.
Source: UN Comtrade Database.
The agricultural sector has contributed to Chile’s economic success, both benefiting from stability and reforms, and making an important contribution via rapid output and export growth. Productivity growth has been central to Chile’s agriculture. With a slight reduction in the use of primary and intermediate inputs into production, growth in output has been achieved by significant improvements in total factor productivity (TFP), with an average of 1.5% per year over the period 2006 to 2015 (Figure 7.6 and Table 7.3). Chile’s agricultural and agro-industrial sector has been very successful in high value primary products (e.g. grapes, tomatoes, apples, berries, etc.) and in value added products or processed products such as wine. Agriculture’s share of GHG emissions decreased from 22.3% in 1995 to 12.5% in 2017 but remains well above the OECD average.
Figure 7.6. Chile: Composition of agricultural output growth, 2006-15
Note: Primary factors comprise labour, land, livestock and machinery.
Source: USDA Economic Research Service Agricultural Productivity database.
Table 7.3. Chile: Productivity and environmental indicators
Note: * or closest available year.
Source: USDA Economic Research Service, Agricultural Productivity database; OECD statistical databases; FAO database and national data.
Description of policy developments
Main policy instruments
Policy measures applied in Chile target a number of areas and uses a range of policy instruments: the expansion and more efficient irrigation systems; land restructuring; maintaining Chile’s sanitary and phytosanitary conditions; investments in agricultural R&D; enhancing policy instruments that promote the development of smallholders and indigenous farmers, in particular, through associativity and with a focus on market integration; promoting innovation; and improving the sustainability of resources, in particular degraded soils.
In 2018, agricultural policy continued to emphasise agricultural competitiveness, social inclusion and sustainability through emphasising technological innovation, technology transfer, access to credit for smallholders and improving market information. Efforts continued to be made public-private partnerships to create more value added along the food value chains for small-scale farmers.
Domestic policy developments in 2018-19
In 2018, the Agriculture and Livestock Service (SAG) developed a plan to modernise inspection process using a web/mobile platform that has a single repository of audits, with gradual change from the use of paper to mobile equipment kits. SAG has also focused on improving co-ordination with the private sector in order to facilitate inspection and export procedures, all this with the aim to facilitate trade, reducing administrative burden and procedures time.
The Institute for Agricultural Development (INDAP), the agency promoting smallholders´ agriculture, has promoted associativity and market seeking to increase the number of small farmers participating in high value internal markets as well as export markets, and improving commercialisation of small-scale agriculture products. In March 2019, 67 productive associations were implemented, which include 45 companies and 2 630 smallholders engaged in different industries and marketing activities. In 2018, public agricultural insurance (Agroseguros) extended its reach to smallholders and medium-scale farmers. Agroseguros also developed and implemented a catastrophic parametric insurance1 and has reactivated the price-hedging programme for wheat and maize. During 2018, the value of insured production was more than USD 450 million.
Risk communication was one of the main works developed by the Chilean Food Safety Agency (ACHIPIA), where informative campaigns for consumers about associated risks with food were created, as well as methodologies that allow continuous education of the population on food risks and food safety. Furthermore, at the beginning of 2018, a collaboration agreement was signed between the Ministry of Health, the Ministry of Agriculture and the Service of Aquaculture and Fishery. This agreement aims at developing activities to minimise antimicrobial resistance associated with food consumption.
During 2018, a Sustainability Standard for berries’ production was developed, based on the principles established in the Sustainable Agriculture Protocol, in order to provide guidance to farmers on sustainable production. Additionally, a capacity building programme on sustainable agriculture for technicians providing advice to family farmers was developed. Finally, the project “Sustainability Program for the Chilean Agrifood Exporting Sector” started in January 2019, with the aim of creating a tool kit for developing sectorial sustainability standards, as well as a digital platform supported by the Trade for Sustainability programme of the International Trade Center.
In 2018, the implementation of the National Policy on Rural Development began, with the main objective of improving the quality of life and opportunities of the rural population. An inter-ministerial committee was created to co-ordinate the implementation of this policy, led by the Bureau of Agricultural Studies and Policies (ODEPA) of the Ministry of Agriculture. Furthermore, a pilot programme was established to implement this policy at a local scale (MINAGRI, 2019[2]).
In 2018, a new national government came into power. This government has defined seven agricultural policy objectives for the 2018-22 period:
1. Strengthen territorial rural development, by improving the quality of rural life, promoting a reduction in existing gaps in accessing basic services and promoting new economic opportunities in rural areas.
2. Strengthen small and medium farmers, through the promotion of associativity, technical support, financing and connection with dynamic marketing channels.
3. Improve information systems, management and transparency of markets, curbing unfair competition and promoting a country image that enhances the integration of Chile to the world, protecting and valuing the phyto-sanitary and zoo-sanitary patrimony.
4. Increase investments on innovation at national level, through effective co-ordination of public and private research centres converge, with a clear orientation towards the generation and adoption of new technologies and productivity.
5. Modernise the management of the Ministry of Agriculture and related specialised agencies, aimed at greater government effectiveness, together with the design, implementation, evaluation, control and transparency mechanisms for its operation.
6. Recognise natural resources, particularly water and soil, as fundamental pillars for the sustainable development of the sector, promoting the generation and adoption of new technologies for the optimisation of their use.
7. Promote sustainable forestry and agricultural production (social, economic and environmental), promoting strategies of adaptation to climate change as an opportunity for the sector.
These seven objectives are framed under four main policy guidelines:
1. Institutional modernisation, with a Ministry focusing on its main constituencies (farmers), with an efficient structure and high impact.
2. Associativity, focusing on ways to organise farmers, for generating economies of scale and mutual support, to be able to face the new challenges of modern agriculture.
3. Sustainability, to conserve and protect landscapes and natural resources, and at the same time generate a differentiating element for Chilean agriculture to the world.
4. Strengthening rural development, as a fundamental factor in overcoming poverty and improve agriculture.
Trade policy developments in 2018-19
Chile has signed 32 Free Trade Agreements (FTAs), of which 27 are in force. Chile continues the renegotiation of its association agreement with the European Union, with an agenda that goes beyond the liberalisation of tariffs, with issues like intellectual property rights and environmental provisions. In November 2018, Chile signed a FTA with Brazil.
References
[2] MINAGRI (2019), “OECD Annual Country Report of Chile”, Government Report, Santiago, Chile.
[1] OECD (2019), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.
Note
← 1. Parametric insurance is based on an index, rather than the actual loss. When a certain value is exceeded on the index, that triggers coverage and claims are paid out to the policyholder.