8. Chile
Chile’s support to farmers is among the lowest of OECD countries with a Producer Support Estimate (PSE) of 2.7% of gross farm incomes in 2020-22, down from 7.3% in 2000-02. Since Chile reduced its tariff-based border protection in the 1990s, agricultural policies create very limited distortions to agricultural markets, with almost no Market Price Support (MPS) to the sector. Domestic producer prices fully align with world prices, as the ratio of average producer to border prices (National Nominal Coefficient, NPC) equalled 1 in 2020-22. Single Commodity Transfers (SCT) are small and limited to sugar and beef, for which they amount to 3.4% and 1.8% of respective gross farm receipts.
As MPS is almost non-existent, agricultural policies are based on budgetary transfers, and total support essentially goes through direct payments to farmers and to general services. Budgetary support to producers represented 42.4% of total support in 2020-22 and is mostly targeted to small-scale farmers. This support mainly includes payments for on-farm fixed capital formation, and on-farm services and variable input use.
Support for general services (General Service Support Estimate, GSSE) accounted for 55% of the total in 2020-22, and focused on off-farm irrigation infrastructure, inspection and control, land access, and agricultural knowledge and innovation systems. Expenditures for general services represented an average 3.4% of the agricultural value of production in 2020-22, slightly below the OECD average. Total agricultural support represented 0.3% of Gross Domestic Product (GDP) in 2020-22 – half the level in 2000-02.
A new administration took office in March 2022. The main priorities of the government are: (1) rural development and well-being; (2) strengthening of small-scale family farming; (3) water and climate emergency; (4) sustainability; (5) food security and sovereignty; and (6) international co-operation and trade.
The National Commission on Food Security and Sovereignty (CNSSA) was established in July 2022 to create the National Food Emergency Plan, and develop and implement measures for food security and sovereignty in the country.
The Sow for Chile (Siembra por Chile) programme implemented since mid-2022 provides direct payments for the purchase of agricultural variable inputs, such as agrochemicals, seeds, and fertilisers to small-scale and indigenous farmers. Payments are made by the agency responsible for small-scale agriculture (INDAP). The initiative also provides loans for medium-sized farms through a public bank (Banco Estado).
In January 2023, INDAP established the programme called Promotion and Strengthening of the Sustainable Production of Traditional Crops to increase sustainable grain and vegetable production. It provides payments to support the adoption of sustainable agricultural practices through acquisition of improved or certified seeds, and credit for the acquisition of these inputs at preferential rates.
The Inter-ministerial Committee for Just Water Transition was created at the beginning of 2023 to address ongoing severe drought, with 16 basin councils (one in each region of the country), marking the beginning of water-governance reform at the basin level, guided by principles of water security, inclusion, and decentralisation.
Chile’s National Adaptation Plan for agriculture includes measures to foster resilience in the agricultural sector. However, the country should take specific actions to facilitate the necessary transformation to more climate-resilient farming structures and production methods, in addition to shorter-term absorption of climate-related shocks. Chile should carefully monitor implementation of such policies and assess their effects on the sector. Moreover, the country must develop more sustainability actions and mainstream them into existing policy instruments for agriculture.
Chile’s commitment to achieving carbon neutrality by 2050 under the national strategy contains nine objectives and 63 goals for mitigation policies and practices linked to agriculture and forestry. However, the country does not have agriculture-specific mitigation targets, which can be helpful for measuring progress on reducing agricultural emissions.
Expenditures for general services – focused on investments including irrigation infrastructure, inspection and control, and agricultural knowledge and innovation systems – remain low relative to the sector’s size. Chile should consider scaling up public investments that help the sector become more sustainable, productive, and resilient. Additional and targeted investments in extension services, innovations favouring sustainable productivity growth, and climate-smart agriculture should be considered – particularly those favouring methane reduction to fulfil its commitment under the Methane Pledge. Investments in irrigation systems must account for the changing climate and use water management to ensure that they do not lead to increased water consumption.
Payments to farmers are rightly tailored and targeted to small-scale farmers and vulnerable populations, such as indigenous and women farmers. Their effectiveness for improving productivity, competitiveness, and the recovery of degraded soils should be carefully assessed to allow for adjustments where current payments prove ineffective.
Improved co-ordination across ministries and agencies that support the agricultural sector or rural populations will help ensure efficient use of public resources. Strong evaluation systems can help in this regard. Horizontal frameworks that bring together multiple ministries can also help.
Moreover, given the increasing number of support programmes by regional governments targeting rural populations, improved co-ordination, communication, and accountability are needed between regional and national governments to avoid overlapping efforts and supports.
Overview of policy trends
Prior to 1973, agricultural policies in Chile followed an import substitution industrialisation model, with measures such as price and production controls for staples (e.g. wheat), import tariffs, and export restrictions. Longstanding institutions were created in this period, including the Institute for Agricultural Development (INDAP - the smallholders’ agency), the Agriculture and Livestock Service (SAG -animal and plant health institute), INIA (agricultural innovation agency), and others. This period also saw land reforms that provided land to small-scale farmers and landless people (Anderson and Valdés, 2008[1]).
Economic and agricultural policies shifted in 1973 with the military coup. Chile was the first country in the developing world to adopt market oriented open-economy reforms and structural macroeconomic reforms. These reduced the role of government in the economy and liberalised trade (OECD, 2008[2]).
From 1973-83, general reforms such as macroeconomic stabilisation were advancing more rapidly than agricultural sector-specific reforms. However, marketing boards and price control agencies for agricultural products were dismantled, import tariffs were reduced and export restrictions were lifted. From the mid-1980s, the government took measures to improve competitiveness and stimulate production and exports, with general services to the sector playing a central role. Several agricultural institutions related to innovation and irrigation were created, but smallholder development, the environment and resource use received little attention (Anderson and Valdés, 2008[1]).
Since the restoration of democracy in 1990, agricultural policy focuses on three objectives: (1) increasing competitiveness, (2) achieving more balanced agricultural development by better integrating poorer, less-competitive, farmers into commercial supply chains, and (3) preserving the environment through sustainable use of resources. Tariffs were further reduced and numerous Regional Trade Agreements (RTAs) were signed, granting trade preferences to partners for agricultural products (OECD, 2008[2]). In 2022 the new government emphasised policies to address inequality issues in the sector, as well as on sustainability and water management (Table 8.2).
Following the near-elimination of market price support (MPS), producer support declined from close to 10% of gross farm receipts at the end of the 1990s to below 4% throughout the 2010s, and averaged 2.7% in the past three years. Support payments related to agricultural input use have partly replaced MPS, and these are targeted to small-scale agriculture. More funding is also provided for the provision of general services, which today account for half of Chile’s total support estimate to agriculture.
Main policy instruments
For Chile, developing small-scale agriculture, the improvement of sustainable productivity, competitiveness and the conservation of natural resources are the main policy focus. As MPS is inexistent, agricultural policies are only based on budgetary allocations. Half of these budgetary expenditures are direct payments to small-scale farmers, which are provided for purchasing inputs, capital formation, credit at preferential interest rates, the Improving degraded soils and on-farm irrigation investments. The other half of the budget is spent in general services to the agricultural sector and is mainly for expanding and improving irrigation systems, access to land, agricultural research and development, sanitary and phytosanitary services and inspection services.
INDAP is the agency in charge of designing and implementing agricultural policies for small-scale farmers. Key programmes administered by INDAP are: 1) services for the development of poor areas, which gives subsidies for variable inputs such as seeds, fertilisers; subsidies for the creation of on-farm fixed capital formation such as equipment and machinery; and subsidies for on-fam services such as like technical assistance in 2022 this programme reach CLP 46.2 billion (USD 53 million); 2) territorial development programme for indigenous communities, that only provides subsidies for fixed capital formation in poor marginalised areas, budget for this programme was in 2022 CLP 35.9 billion (USD 41 million); 3) incentives for the development of agricultural investment which grants subsidies for variable inputs as well as for fixed capital formation on the farm, INDAP spent on this programme in 2022 CPL 26.3 billion (USD 30 million); 4) services for the development of productive and entrepreneurial capacities, that only provides different types of on-farm services, such as technical assistance, expenditures allocated to this programme in 2022 were CLP 16.8 billion (USD 19.2 million).
INDAP also provides credit to smallholders at preferential interest rates, the subsidy equivalent of this credit was CLP 12.6 billion (USD 14.5 million). INDAP has a crop insurance programme, which covers up to 50% of the premium.
Another important category of payments to farmers goes to the soil recovery programme. Around 70% of these resources were administered by INDAP and addressed to smallholders; the remaining 40% was administered by SAG (the animal and plant health agency) and given to medium and large-scale farmers. The programme aims to recover degraded soils and make them apt for agricultural practices, as well as soil conservation practices.
Subsides for irrigation is another important category that is managed by the national irrigation commission (CNR). This irrigation subsidy has both on-farm and off-farm components. On-farm support provides subsidies to farmers to improve or install a new irrigation system. On-farm subsidies represent 40% of spending, whereas 60% is used for community, regional or national investments.
GSSE is dominated (58%) by investments on infrastructure basically for irrigation and land and water rights for indigenous communities. Inspection services is another category with 24%, and lastly R&D and agricultural schools contributed with 15% of total budget to GSSE.
Chile’s Nationally Determined Contribution (NDC) committed to carbon neutrality by 2050 and takes a carbon budgeting approach, although no specific target has been defined for agriculture. The LTCS strategy contains nine objectives and 63 goals linked to the agricultural and forestry sector. These goals are related to capacity building, agricultural R&D, agricultural extension services, reduction of greenhouse-gas (GHG) emissions, increasing carbon sequestration, and strengthening climate change governance.
Climate change adaptation policies in agriculture
In 2022, the Office of Agricultural Policies and Studies (ODEPA) developed an action plan to implement the Sustainability Strategy for the Chilean Agri-food Sector (launched in 2021), creating a system of indicators for monitoring and following-up targets and actions. Chile updated its National Adaptation Plan for agriculture over the course of 2022. Some key measures better integrating forestry, agricultural, and livestock management practices into techniques for adaptation to climate change; preserving and restoring natural ecosystems; implementing technologies that increase irrigation efficiency; and improving off-farm infrastructure and water management practices.
Since early 1990s, Chile has been implementing the soil recovery programme, which promotes soil health, recovery and conservation, and has been a key programme to increase the sector’s adaptation. The operational rules and legislation for this programme are being updated and will be submitted for legislative debate during 2023. The new operational rules aim to reorient incentive payments to sustainable practices, including elements of agroecology, regenerative agriculture, organic agriculture, and purchase and development of agricultural bio-inputs.
The Chile Conscious Origin (Chile Origen Consciente) programme promotes the implementation of best agricultural practices in the Chilean agri-food sector. Established in 2022, it provides a framework for farmers to incorporate sustainability standards in their operations to help them verify their compliance through self-assessments and independent audits.
In 2022, INDAP developed the transition to sustainable agriculture programme, which promotes conservation of productive resources, resilience to climate change, and availability of and access to healthy food. This programme provides on-farm advisory services to help farmers adopt sustainable and agroecological management practices.
The Framework Law on Climate Change was published in June 2022. It is the first national legislation to address climate change as a state policy and introduces the legally binding target of economy-wide carbon neutrality by 2050. The legislation lays down new rules at the central, regional, and local levels. One of these is the first National Mitigation Plan for the Agri-food Sector, which contains measures and actions necessary to reduce GHG emissions in the sector. The first stages of inter-ministerial co-ordination of the plan began in the second half of 2022.
Domestic policy developments in 2022-23
In March 2022, a new administration took office. Its agenda is to accelerate the transformation of food systems, moving towards fairer, healthier, and more sustainable production. Key new priorities are: 1) rural development and well-being; 2) strengthening of small-scale family farming; 3) water and climate emergency; 4) sustainability; 5) food security and sovereignty; and 6) international co-operation and trade.
The Ministry of Agriculture implemented the “Sow for Chile” (Siembra por Chile) programme that provides direct payment for the purchase of agricultural variable inputs such as biochemicals, agrochemicals, seeds, and fertilisers, to small-scale and indigenous farmers through the agency responsible for small-scale agriculture (INDAP). The initiative also provides loans for medium-sized farmers through a public bank (Banco Estado). The Sow for Chile initiative provides direct payment for the purchase of inputs for farming traditional agricultural products such as grains and potatoes. The payments amount to CLP 219 thousand (USD 251) per hectare for a maximum of 5 hectares per farmer per year. Another element of Sow for Chile is the physical provision of fertiliser and grants for the purchase of fertilisers (mineral or organic). Crops eligible for this subsidy are fruits, legumes, vegetables, and potatoes.
In 2023, INDAP established the programme “Promotion and Strengthening of the Sustainable Production of Traditional Crops” that aims to increase sustainable grain and vegetable production. The programme provides payments to adopt sustainable agricultural practices through the acquisition of improved or certified seeds and also provides credit for the acquisition of these inputs at preferential rates. The programme has two pillars:
competitiveness to address costs, productivity, and commercialisation
sustainability to address soil protection and other practices that reduce greenhouse gas emissions and encourage carbon sequestration.
The National Commission on Food Security and Sovereignty (CNSSA) was established in 2022 to create the National Food Emergency Plan and develop and implement a set of measures for food security and sovereignty in the country. The plan will be implemented in 2023 and has ten main measures:
Mitigate the lack of access to fertilisers through direct delivery of fertilisers.
Create a security plan for strategic food zones to ensure food supply across the country.
A new Irrigation Law that provides access to water to small-scale farmers and ensures environmental sustainability.
Enhance inspections (food safety) in operations of the main port terminals.
Create 70 micro-foodbanks nationwide to deliver fruits and vegetables to vulnerable populations.
Implement a more efficient agricultural emergency responses for those production systems affected by climatic hazards, through the physical provision of inputs, such as material for on-farm irrigation systems, fertilisers, seeds, etc.
Expand preferential credit with state loan guarantee by Banco Estado.
Develop a price information system for seasonal food, to inform consumers of the cost of inexpensive and healthy food choices.
To address ongoing severe drought, the Inter-ministerial Committee for Just Water Transition was created at the beginning of 2023 with 16 basin councils, one in each region of the country, marking the beginning of a reform of water governance at the basin level, guided by principles of water security, inclusion, and decentralisation. The CNR represents the Ministry of Agriculture at this committee. The CNR is reforming its main legal instrument for water efficiency in the country, Act No. 18.450 for the promotion of private investment in irrigation works, directing public investment in small and medium agriculture, women, and indigenous peoples, while granting greater environmental sustainability through the application of this policy.
Moreover, the CNR will allocate more resources to diagnostic studies to improve basic information for better irrigation management and water security initiatives, project future irrigation works, and programmes to strengthen the technical and organisational capacities of users and other relevant stakeholders for water management in the basins. Finally, the institution is formulating a plan of small and medium-sized infrastructure projects to significantly increase public and private investment in irrigation works, including green infrastructure and nature-based solutions, to address the expected growing water scarcity. The plan will take into consideration regional particularities and the needs of those sectors most vulnerable to climate change. It will be framed within the principles of sustainable rural development.
The animal and plant health agency Agricultural and Livestock Service (SAG) the continues to work on strengthening sanitary and phytosanitary system of the country to support the sustainable and competitive development of the forestry and livestock sector. This work is carried out by promoting the use of new technologies and an ongoing review of technical and administrative regulations and procedures, following the recommendations of the international reference bodies. In 2022, the Digital Affidavit (DA) was put in place in 22 entry points, reaching 29% coverage at border controls nationwide. At the same time, the new organisational structure “Laboratory Network” was established. Priorities were defined for the period, with emphasis on budget management, aimed at improving efficiency, focusing on improving infrastructure, optimising expenses associated with processes on diagnostics or analyses.
The Foundation for Agrarian Innovation (FIA) promotes innovation through the promotion, articulation, development of capacities and technological diffusion of initiatives. During 2022, new strategic guidelines were defined that will be incorporated in the different project funding initiatives: (1) sustainable management of water resources, (2) adaptation and mitigation to climate change, and (3) sustainable food systems. These guidelines contribute to the sustainable development and competitiveness of Chile and its regions, with special emphasis on sustainable agro-food co-operatives (AgroCoopInnova Programme), youth (Innovative Rural Youth Programme), and women through the creation of the first Network of Innovative Rural Women in 2023.
Trade policy developments in 2022-23
In 2022, an agreement signed with the South Korean Health Authority was implemented and the transmission of electronic certificates began. With the United States, progress was made on a technical level with a view to an upcoming exchange of electronic certificates. With the Pacific Alliance countries, the electronic certificate exchange standard was defined and the work plan for its implementation was established in 2023. Technical tests were completed with the People’s Republic of China (hereafter “China”).
New countries adopted the modality of the paperless exchange process with Chile: Panama, Paraguay, Spain, and France, as well as the conduction of trials for the implementation of ePhyto with Bolivia, Ecuador, Guatemala, Thailand, Indonesia, Australia, and Korea. Regarding integration with SICEX (online platform for international market), in 2022 adjustments were made for integrating with the Postal System.
Negotiations to broaden the Partial Scope Agreement (PSA) with India and modernise the FTA with Korea finished in 2022. Negotiations with the European Union and the European Free Trade Association (EFTA) also concluded in 2022. The negotiations for an FTA with Paraguay were concluded in 2021 and were ratified by the Chilean Congress. During 2022, negotiations with Trinidad and Tobago continued for a Partial Scope Agreement (PSA). In 2022, Chile signed a Memorandum of Understanding (MoU) on agricultural co-operation with the Philippines and Thailand. Lastly, in February 2023 Chile ratified its membership to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
Real GDP growth in Chile has averaged around 4% since 2000 and made it become an upper middle-income country. Agriculture’s weight in the economy is similar to the average of countries covered in this report, accounting for 3.7% of GDP and 6.4% of total employment in 2021. The sector has a dual structure, in which small-scale farms co-exist alongside a large-scale commercial farm sector. Chile is an open trade country, which has helped it to become an important producer and exporter of agricultural and food products such as fruits, vegetables, dairy products, poultry, pig meat and wine. Chile is a net exporter of agro-food products with a surplus of around USD 2.8 billion (excluding fish and forestry) in 2021. Agro-food products accounted for 14% of Chile’s total exports, and for 11.4% of its imports.
After a strong recovery in 2021 following the contraction due to the COVID-19 pandemic, Chile’s economy grew by just 1.9% in 2022, similar to pre-pandemic rates. The country’s unemployment rate decreased from 8.8% in 2021 to 7.7% in 2022. Inflation reached 11.6% in 2022, the highest in two decades.
Chile’s agricultural and agro-food sector has been successful in adding value to the production of primary commodities, by producing more differentiated products such as temperate fruits, and processed products such as wine. In 2021, 86% of agro-food exports were products for final consumption, both primary and processed, and only 14% were products for further industrial processing. Agro-food imports were mostly processed products for consumption with a 55%.
Productivity growth has been the dominant driver for Chile’s growing agricultural production. Output growth averaged 1.8% over the period 2011-20, slightly below the global average, and has been mainly achieved by improvements in total factor productivity (1.6%), supported by some additional use of primary and intermediate inputs. Agriculture accounts for around 11% of Chile’s GHG emissions, similar to the OECD average. Around 7% of the total agricultural land is irrigated.
References
[1] Anderson, K. and A. Valdés (2008), Distortions to Agricultural Incentives in Latin America, World Bank, Washington DC, https://openknowledge.worldbank.org/handle/10986/6604.
[2] OECD (2008), OECD Review of Agricultural Policies: Chile 2008, OECD Review of Agricultural Policies, OECD Publishing, Paris, https://doi.org/10.1787/9789264042247-en.