10. Costa Rica
Support to agriculture
Costa Rica’s policies to support agricultural producers averaged 5.8% of gross farm receipts (%PSE) in 2017-19, lower than the OECD average. This support is almost entirely (92%) based on Market Price Support (MPS) – one of the most trade and production distorting forms of support – and is generated through border measures (tariffs) and minimum domestic prices. Products most supported through such policies include rice, poultry, pig meat and sugar. The remaining of the PSE is provided through subsidies for agricultural equipment and machinery, payments for environmental services, and other types of subsidies. Expenditures on general services (GSSE) accounted for 2.4% of agricultural value added, and were allocated to three main areas: agricultural knowledge and innovation system, particularly extension services; development and maintenance of irrigation and rural roads infrastructure; and inspection and control.
Main policy changes
In May 2019, the government issued the Ministerial Directive DE 049 MAG-MCEE, instructing state banks to provide support to agricultural and fisheries producers who incurred credit defaults due to climatic and pests disasters. This support was provided, among others, through direct payments, debt rescheduling, extended grace periods, and further lowering interest rates for farmers.
At the end of 2019, the Molecular Biology Laboratory of the Agricultural Technology Research and Transfer Institute, INTA, was modernised with new equipment and instruments for the genetic improvement of crops. During 2019, INTA announced the Agro-ecological Zoning (ZAE) initiative for four cantons of the country. This project generated zoning maps of selected crops and maps for soil use and soil fertility. Training for farmers for the use of this zoning tool was made available. Furthermore, a training programme for farmers on measures for climate change adaptation was created. This initiative seeks to help farmers take better decisions for the sustainability and resilience of their production systems, as well as to improve water and soil resources management.
The DESCUBRE Programme – an initiative linking farmers to markets – was created in 2019 as a public-private alliance between the Ministry of Agriculture (MAG), Ministry of Trade (COMEX), the export promotion agency PROCOMER, the Development Banking System (SBD), the Investment Promotion Agency (CINDE), academia, and the private sector. In July 2019, the Regional Wholesale Market was opened in the province of Guanacaste.
Assessment and recommendations
Costa Rica’s producer support is still predominantly provided through border protection for several products, namely poultry, pig meat, milk, and sugar and through minimum reference prices for rice. This support continues to distort both domestic markets and trade, constrains competition and, hence, productivity and competitiveness.
Limited agricultural infrastructure is a significant bottleneck, preventing the sector from becoming more efficient and more responsive to market signals. Major investments are required both to enhance productivity (e.g. through irrigation and drainage) and to facilitate the access to markets (e.g. through transportation, distribution, cold-chain facilities, etc.).
Increased efforts to improve the effectiveness and efficiency of Costa Rica’s extension services, where 21% of the total public expenditures to the sector are allocated, should be initiated, given the importance of these services to the sector.
Small-scale producers still have low productivity levels and suffer from poor access to credit and financial tools. In addition, stringent requirements impede small-scale farms from taking advantage of available credit sources, as private commercial banks lack incentives to provide loans to small-scale farmers. While care needs to be taken to avoid generating moral hazard, existing credit programmes provided by the national development bank and agricultural organisations could be expanded as a first step to improve the financial infrastructure for smallholders in particular.
In 2019, Costa Rica outlined its plan to achieve net-zero emissions by 2050. This plan includes strategies for all sectors, including agriculture, through actions such as improving farming practices and reducing food waste. Further scope exists to reinforce these efforts.
Policy responses in relation to the COVID-19 outbreak
Agricultural policies
Costa Rica created a task force under the Minister of Agriculture and the directors of main agricultural centralised and decentralised entities that will monitor the evolution of the outbreak and take measures to respond to the crisis.
To reduce the spreading of COVID-19, brochures with sanitary measures are being distributed to farmers, farmer organisations, and stakeholders of the sector. Moreover, strict sanitary measures contained in SENASA’s circular DG384-2020 have to be implemented in cattle auctions.
The Ministry of Agriculture (MAG) regional offices suspended face-to-face procedures, now they are carried out online.
SFE (plant health entity) is applying a temporary suspension of sampling for analysis of agrochemical residues in low risk vegetal products, so that import sampling will be suspended, reducing the time required to import food.
SFE and SENASA (animal health entity) have increased protection for the animal and plant health control workers and passengers in airports and borders. They are also allowing the entry of goods with digitalised documentation, which was not the case before. Finally, SFE has created an online system for real time consultations on phyto-sanitary certificates for exported products.
MAG, SFE and SENASA have extended expiration dates of certifications and registrations for agricultural producers. Pest inspections are maintained without exception. INDER (rural development entity) approved a four-month moratorium on rural credits, starting in March 2020.
The agricultural sector has negotiated with the national banking system the reduction of interest rates, extensions of credit terms, extensions in payments, based on Presidential Decree No. 75-H.
The Ministry of Finance (Law No. 9830) granted a moratorium for VAT payments and VAT exemption on commercial leases, including those in the agricultural sector, during April, May and June 2020.
INDER is buying inputs such as seeds and fertiliser to supply to small-scale farmers. INDER and CNP signed an agreement to buy beans in the northern region of the country. This initiative is taking part within the broader institutional supply programme by CNP.
Agro-food supply chain policies
Farmers’ Fairs are still in operation but are being supervised by the National Board of Fairs to comply with sanitary measures stated by the Ministry of Health.
PIMA (the wholesale market) disinfects and cleans the facilities between each shopping plaza and restricts access to people with symptoms of a cold or COVID-19.
Consumer policies
CNP (National Production Council/public food procurement entity) in co-ordination with the Ministry of Education is providing food baskets to families with schoolchildren.
Following decreased exports, INCOPESCA (Fisheries entity), is carrying out a campaign to increase the consumption of fishery products. In addition, with the support of private companies, it is providing food to poor fishing families.
Other
The National Sugarcane Liquor Factory (FANAL), owned by the State, is producing alcohol and alcohol-based antiseptic solution for national hospitals and makes home deliveries to individuals, through an alliance with Costa Rica postal service.
Note: * Share of potentially most distorting transfers in cumulated gross producer transfers.
Source: OECD (2020), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
Support to producers, as measured by the %PSE has decreased from 8.2% in 2000-02 to 5.8% in 2017-19, remaining well below the OECD average. Potentially most production and trade distorting support, in the form of market price support (MPS), continues to dominate and represented 92%% of the PSE in 2017-19. Border protection and price interventions resulted in producer prices 6% higher than international prices in 2017-19, on average. Spending on general services to the sector (GSSE) represented 2.4% of the total agricultural value added (Figure 10.1). Total Support Estimate to the sector represented only 0.6% of the GDP. Producer support increased significantly in 2019 compared to 2018, mainly due to rising price gaps driven by lower prices on world markets (Figure 10.2). Single Commodity Transfers (SCT) are particularly important for rice (53.4% of gross farm receipts), pig meat (31.5%), poultry (26.7%) and sugar (23%) (Figure 10.3).
Source: OECD (2020), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
Source: OECD (2020), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
Contextual information
Costa Rica is a small country with a population of 5 million in 2018. The country’s long democratic tradition and political stability have underpinned its important economic progress – including the development of its agricultural sector. Agriculture still plays a relatively strong role in the economy, contributing 4.6% to the country’s GDP and employing 12.5% of its work force. Costa Rica has achieved higher standards of living and lower poverty rates than other countries in the region, with a per capita income of USD 17 671 (PPP) in 2018 (Table 10.2).
Despite slowing growth in recent years, the economy has grown by around 4% per year on average since 2000, exceeding the average growth of a number of other economies in the region. Inflation has significantly declined since 2005 (Figure 10.4). Costa Rica has developed a successful and dynamic agricultural export sector in recent decades. The country is a net agro-food exporter, with a share of agro-food exports in total exports of 41.5% in 2018. Half of Costa Rica’s agricultural exports are primary crops for final consumption, such as bananas and pineapples (Figure 10.5). The country is also an important exporter of processed products for final consumption, such as pineapple juice. Half of agro-food imports are processed products for final consumption.
Sources: OECD statistical databases; World Bank, WDI and ILO estimates and projections.
Note: Numbers may not add up to 100 due to rounding.
Source: UN Comtrade Database.
Total Factor Productivity (TFP) growth has decreased from the 2000s and has been slightly below the world average over the last decade (Figure 10.6). Area expansion into less productive land, ongoing farm fragmentation and limited financial and physical infrastructure were among the key contributing factors to this decline. Agriculture is the main user of water resources with a share of 68% of water abstractions (Table 10.3). Environmental regulations have led to the reforestation of large parts of the country, and 25% of Costa Rican territory is now under some form of environmental protection. Available data suggest, however, a high and only slowly falling phosphorous surplus, and a quarter of the country’s GHG emissions are caused by agriculture.
Note: Primary factors comprise labour, land, livestock and machinery.
Source: USDA Economic Research Service Agricultural Productivity database.
Description of policy developments
Main policy instruments
Costa Rica has the overarching policy guideline: “Policy Guidelines 2019-2022 of the Agricultural, Rural, and Fisheries Sector”. This guideline is under the umbrella of the long-term strategy, created in 2010, for the agricultural sector 2010-21 “State Policy for the Agrifood Sector and Rural Development 2010-2021”, that aims to achieve a mechanised, competitive, inclusive and sustainable agriculture with responsive, modern and co-ordinated public institutions.
Costa Rica maintains important border measures, in particular tariffs for several agricultural products (rice, poultry, pig meat, milk, sugar, etc.). Moreover, the country maintains a minimum reference price for rice. This reference price is based on the analysis of domestic production costs, processing costs, international prices, carried out by the National Rice Corporation (CONARROZ). The institution in charge of supervising the minimum prices for rice is the Ministry of Economy, Industry and Commerce (MEIC). This minimum reference price is imposing a significant burden on consumers (final consumer), especially the poorest, as Costa Rica has one of the highest domestic rice prices in the world, and low income households allocate a significant part of their income to purchase this staple at prices higher than in the international market.
Budgetary policy instruments are predominantly focused on providing essential services to agriculture, including extension services, research and development (R&D), and plant and animal health services with a significant emphasis on environmental protection.
The Agricultural Technology Research and Transfers Institute (INTA) is the public institution managing agricultural R&D and innovation. INTA also operates the services of technology transfer and extension services to farmers. The National Animal and Health Service (SENASA) and the National Phyto-sanitary Service (SFE), are the two agencies in charge of animal and plant health services.
The country also provides minor subsidies like payments for environmental services such as the use of green or living fences and terraces, organic production or soil condition improvements, implicit subsidies through credit at preferential interest rates to all loans, and some subsidies for fixed capital formation that are mostly directed to small-scale farmers.
Domestic policy developments in 2019-20
In May 2019, the government issued the Ministerial Directive DE 049 MAG-MCEE, instructing state banks to provide support to agricultural and fisheries producers who incurred credit defaults due to climatic and pests disasters. This support was provided through partial payments, debt rescheduling, extended grace periods, further lowering interest rates for farmers, among others. Resources would be provided through the National Development Trust Lines for Emergency Programs, FINADE. This initiative also includes trainings for financial education and insurance use for farmers.
At the end of 2019, INTA’s molecular biology laboratories were modernised with new equipment and instruments for the genetic improvement of crops. These laboratories are responsible for the R&D for seeds and germplasm. This new technology should reduce the time and costs in the validation processes of new varieties, and improve the quality control of materials and varieties that are introduced to the country.
During 2019, INTA announced the Agro-ecological Zoning (ZAE) initiative for four cantons of the country. This project generated zoning maps of selected crops and maps for soil use and soil fertility. Training for farmers for the use of this zoning tool was made available. Furthermore, a training programme for farmers on measures for climate change adaptation was created.1 This initiative seeks to help farmers take better decisions for the sustainability and resilience of their production systems, as well as to improve water and soil resources management.
During 2019, the Ministry of Agriculture strengthened the sectorial office for climate actions and decarbonisation by formalising it and allocating more personnel. The office is formed by experts of the ministry, who incorporate aspects of adaptation and mitigation to public agricultural projects.
The Special System for Agriculture and Livestock or REA (Régimen Especial Agropecuario), implemented on 1 October 2019, consists in the application of value added tax on agricultural and fishing activities. Law 9635 “Strengthening Public Finance” states that from June 2020, producers engaged in agricultural and fishing activities must pay (1) a 1% tax on imports of any supplies, raw materials, machinery and equipment used in agricultural activities; (2) sales tax or value added tax (VAT) of 1% when selling agricultural products that are included in the Basic Tax Basket, which is paid by the final consumer; and (3) for products that are not included in the Basic Tax Basket, producers must charge 13% VAT to final consumers. Prior to Law 9635, agricultural and fisheries products were tax-exempt.
The DESCUBRE Programme – an initiative linking farmers to markets – was created in 2019 as a public-private alliance between the Ministry of Agriculture (MAG), the Ministry of Trade (COMEX), the promotion agency PROCOMER, the Development Banking System (SBD), the Investment Promotion Agency (CINDE), academia, and the private sector. The DESCUBRE programme focuses on improvements and adjustments to the products’ quality, certification, post-harvest innovation, logistics, and other features, required for better access to export markets. DESCUBRE is managed by MAG-COMEX-PROCOMER. Its Executive Committee is composed of members from MAG, COMEX, PROCOMER and the SBD, while representatives of the product commerce chambers, universities and entrepreneurs provide strategic guidance and validation through an advisory council of the private sector.
In July 2019, the Regional Wholesale Market was opened in the province of Guanacaste, allowing around 6 500 farmers to market their products directly to hotels, restaurants and companies. This new market infrastructure is open for all types of agricultural, livestock and fish products.
Trade policy developments in 2019-20
There were no major developments in agricultural trade in 2019-20. However, in July 2019, the Association Agreement between Central America and the United Kingdom of Great Britain and Northern Ireland (AACRU) was signed by the Legislative Assembly of Costa Rica. This meets the same trading and investment conditions negotiated in the Agreement of Association between Central America and the European Union (AACUE) and is to enter into force once the United Kingdom has fully left the European Union.
Costa Rica and Mexico have had a trade dispute on avocados since 2015. Costa Rica banned imports of fresh avocados from Mexico, with the aim to protect itself from sunblotch disease (G/SPS/N/CRI/160 and G/SPS/N/CRI/162). The two parties continued their consultations under the WTO Dispute Settlement Mechanism, and on 16 May 2019 the Panel, within the panel and appellate body proceedings of the WTO was composed and is expected to issue its final report to the parties by the second half of 2020.
Note
← 1. This training is a self-learning course downloadable at www.platicar.go.cr.
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