8. Chile
Chile’s support to farmers is among the lowest among OECD countries at 2.7% of gross farm incomes in 2019-21, down from 7.3% in 2000-02. Since Chile reduced its tariff-based border protection during the first decade of this century, agricultural support creates very limited distortions to agricultural markets, with almost no market price support (MPS) to the sector, as domestic producer prices almost fully align with world prices. Therefore, single-commodity transfers are small, and limited to sugar and beef, for which they amount to 3% and 2% of respective gross receipts.
Budgetary support to producers mostly targets small-scale farmers, based on input use, particularly to support fixed capital formation. More than half of public expenditures in the sector go to general services (GSSE), especially for off-farm irrigation infrastructure, inspection and control, land access and restructuring, and agricultural knowledge and innovation systems. Expenditures for general services represented, on average, 3.3% of agricultural value of production in 2019-21, slightly below the OECD average. Total agricultural support represented 0.3% of GDP in 2019-21, half of the level in 2000-02.
In 2021, policies were implemented in accordance the four strategic pillars for 2018-22: (1) sustainability and water; (2) institutional modernisation; (3) promotion of farmer organisations; and (4) rural development. The Institute of Agricultural Development (INDAP) continued working on market access, associativity and access to water for smallholders.
The rural policy initiative began implementation in 2021. Different instruments for rural development were created to measure quality-of-life improvements in rural areas. In 2021, the Eighth Agricultural and Forestry Census was carried out. The results are expected for the second semester of 2022. The Sustainability Strategy for the Chilean Agri-food Sector launched in August 2021. It aims to identify the best agricultural practices for sustainable production of agricultural products. In 2021, the Office of Agricultural Policies and Studies (ODEPA) developed a system of indicators for monitoring and tracking this Strategy, expected to be implemented in 2022.
In 2021, the Agriculture and Livestock Service (SAG), Chile’s national animal and plant agency, implemented several initiatives, including the creation of a regulatory committee to supervise and support the implementation of good regulatory practices within SAG. The SAG Digital Affidavit was extended for land and airport border controls in addition to those at Santiago’s Airport. SAG also updated its phytosanitary regulations, removing a significant number of goods, such as highly processed wood, from the list of those subject to SAG inspections.
For animal health certification, the paperless electronic certificate was implemented with Russia, and work plans signed in 2021 with Korea and the United States to be implemented in 2022. Progress was made with the Pacific Alliance to implement the electronic exchange of certificates through single windows by 2022. Electronic phytosanitary certification was implemented with the Dominican Republic and tests were carried out with Panama, Ecuador and Paraguay. Paper-based import certification tests were carried out with Spain and France. The paperless exchange is expected to begin with these countries in the first half of 2022.
Chile committed to achieve carbon neutrality by 2050, and significant efforts such as the Chilean Long Term Climate Strategy were developed relating to all sectors of the economy. The strategy contains nine objectives and 63 goals linked to the agricultural and forestry sector. These are limited to mitigation policies and practices, and Chile has no agricultural-specific mitigation target.
Chile emphasises the provision of public services to the agricultural sector. As a result, general services (GSSE) account for 50% of total support to the sector, allocated mostly to irrigation infrastructure, inspection and control, and agricultural knowledge and innovation systems. Even so, expenditures are low relative to the value of agricultural production and could be scaled up.
Payments to farmers target small-scale agriculture and indigenous farmers, who potentially are most in need. While these aim to improve productivity, competitiveness, recovery of degraded soils, and on-farm irrigation systems, attention should be paid to their effectiveness. Impact assessments should be systematic as these payments account for half of public outlays to the sector.
Given the rising number of support programmes targeting rural populations not directly implemented by the Ministry of Agriculture, keys to ensuring efficient use of public resources are improved coordination across ministries and agencies that provide support to the agricultural sector, and strong systems of evaluation.
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. The country implemented measures such as price and production controls for staples (e.g. wheat), import tariffs, and export restrictions. At the same time, key institutions were created that remain in place, such as 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. During this period, the government also undertook land reform, providing land to small-scale farmers and landless people (Anderson and Valdés, 2008[1]).
Economic and agricultural policies shifted in 1973. 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 went into effect while agricultural sector-specific reforms were deferred. 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, principally by providing general services to the sector. 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. Successive governments continued to commit to open markets. Tariffs were further reduced and numerous Regional Trade Agreements (RTAs) were signed, granting trade preferences to partners for agricultural products (OECD, 2008[2]) (Table 8.2).
As market price support (MPS) has practically disappeared, Chile’s level of 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. To some extent, MPS was replaced by payments related to agricultural input use, targeted to small-scale agriculture. Budgetary support also increased towards the provision of general services, which today account for half of Chile’s total support estimate to agriculture.
Main policy instruments
Agricultural policy continues to emphasise the development of small-scale agriculture, the improvement of sustainable productivity and competitiveness, and the conservation of natural resources. Half of budgetary expenditures spent on agriculture are direct payments to small-scale farmers, which include variable input subsidies and subsidies for capital formation, as well as access to credit at preferential interest rates; subsidies for fixed capital formation, in particular improving degraded soils; and on-farm services such as producer association programmes for small-scale and indigenous farmers. The other half of the budget is spent in general services to the agricultural sector, such as investments in infrastructure, mainly the expansion and improvements of irrigation systems, restructuring of and access to land, agricultural research and development, sanitary and phytosanitary services and inspection services.
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. Market price support has declined over the years and most favoured nation (MFN) tariffs for agricultural products have fallen to around 1%.
Climate change mitigation policies in agriculture
Chile’s Nationally Determined Contribution (NDC) committed to carbon neutrality by 2050 and takes a carbon budgeting approach. This means Chile commits to a greenhouse gas (GHG) emissions budget limit of 1 100 Mt CO2eq between 2020 and 2030, peaking emissions in 2025. In 2030, GHG emissions shall not exceed 95 Mt CO2eq. In line with this commitment, Chile launched the Long-Term Climate Strategy (LTCS) at COP26 in 2021. Agriculture is an important contributor to GHG emissions, with 10.5% of national emissions in 2018. GHG emissions for agriculture correspond 55% to enteric fermentation and manure management, and 40% to agricultural soils. 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 GHG emissions, increasing carbon sequestration, and strengthening climate change governance. The nine objectives are:
1. Create and strengthen institutional and territorial capacities in the agricultural and forestry sector to face the challenges of climate change, especially for the most vulnerable producers.
2. Promote R&D and rural extension that contribute to climate action to develop resilient and low-emission agricultural and forestry sectors.
3. Promote agri-food systems that are low in GHG emissions through the efficient and sustainable use of natural resources to ensure the production of food.
4. Reduce vulnerability and generate resilience in the agricultural and forestry sectors, promoting the implementation of adaptation measures to climate change to contribute to food security.
5. Strengthen the Ministry of Agriculture’s institutions on climate change.
6. Promote initiatives focused on avoiding and/or reducing deforestation and the degradation of vegetation resources, contributing to mitigation and adaptation to climate change, and reducing the occurrence and risk of forest fires.
7. Promote the management and conservation of native vegetation resources (forests and xerophytic) and wetlands, directing it towards the production of ecosystem goods and services, nature conservation and the needs of local communities.
8. Promote initiatives to increase the creation of forests and the permanent coverage of vegetation resources in priority areas for restoration at the landscape scale, increasing resilience and reducing the vulnerability of communities and territories.
9. Promote participation in the design of actions and policies with a gender approach and emphasis on local communities and indigenous peoples, considering respect for the rights of people and their cultural heritage.
In line with the LTCS strategy, the Ministry of Agriculture will start to implement climate change mitigation initiatives in 2022, starting with activities such as the efficient use of fertilisers, improved emission reduction treatments for pig manure, and sustainability standards with mitigation actions for three agri-food subsectors: dairy, poultry and pork. The initiatives also include soil improvement programmes incorporating soil management practices that capture carbon and contribute to climate change mitigation. A roadmap for cattle carbon neutrality is under development. Efforts to prevent and reduce food losses and waste (FLW), such as improving information on FLW, carrying out studies at the processing level to identify areas of waste, and others, took place. Moreover, the country consolidated the GHG Inventory and Prospects System of the agriculture, livestock and forest sectors.
Domestic policy developments in 2021-22
In 2021 policies were implemented in accordance with the four strategic pillars for the period 2018-22: a) sustainability and water; b) institutional modernisation; c) promotion of farmer associativity; and d) rural development. The Institute for Agricultural Development (INDAP) continued modernising the governance of three of its programmes: the Local Development Programme (PRODESAL), the Agricultural Programme for the Comprehensive Development of Small Farmers of the Coquimbo Region (PADIS), and the Technical Advice Programme (SAT). By 2021, 254 municipalities had signed agreements with INDAP for PRODESAL; and that 1 564 farmers were migrated from PRODESAL to SAT programmes due to the new characterisation criteria of INDAP’s beneficiaries.
During 2021, INDAP continued working on encouraging market access through the promotion of smallholders’ associativity. The main outcomes of this work, was that for 2021 there were 551 new rural smallholders associative companies accredited by INDAP that received INDAP’s support through some of its main policy instruments such as productive alliances, rural market, marketing agreements, and public purchase. These new organisations represented an increase of 110% compared to 2017.
INDAP signed, in 2021, a collaboration agreement with the Indigenous Development Corporation (CONADI), through which INDAP received financial resources from CONADI for the construction of more than 800 wells for small-scale indigenous producers in the Biobío, Araucanía, Los Ríos, and Los Lagos regions. INDAP also signed a collaboration agreement with the General Directorate of Water (DGA), through which the DGA received financial resources from INDAP to implement a work programme at national level in five lines of action: user organisations; rights of use of individual waters; water use surveillance; monitoring of effective extractions; and dissemination and training, to improve smallholders’ agricultural water access.
The Origin Seal (Sello Originario) was created to identify several brands and products associated with healthy ancestral foods. The Seal identifies healthy food products produced by smallholders from indigenous communities. Around 2 000 products received the Seal, benefiting 316 small-scale farmers.
The rural policy initiative started its implementation in 2021. Different instruments for rural development were created to measure quality of life improvements in rural areas such as the Indicators System of Rural Quality of Life, the Methodological Guides for Regions and Municipalities, and the Rural Atlas. Also a National Council was created, with members from the public and private sectors, academia and civil society, to facilitate implementation of the Rural Policy. The OECD Principles for Rural Policy have been an important guide in this process (OECD, 2019[3]).
The Foundation for Agricultural Innovation (FIA) opened new offices in the north and extreme south of the country, regions where there were no offices before. After an institutional modernisation process, FIA provides financial resources to farmers according to their stage of the innovation cycle. Likewise, FIA modernised its internal management processes to improve its efficiency in delivering support and solutions to the agricultural sector.
In 2021, the VIII Agricultural and Forestry Census was carried out. The results are expected for the second semester of 2022. Likewise, a plan to strengthen agricultural statistics has been carried out, incorporating new information, with special emphasis on production. At the same time, improvements have been applied to current statistics to monitor production chains, including information related to the use of raw materials and the participation of producers in different sales channels, among others.
The Sustainability Strategy for the Chilean Agri-food Sector was launched in August 2021. The strategy was developed through a participatory methodology which included public-private meetings, regional workshops and a public consultation process involving farmers associations, agribusiness associations, academia, NGOs, and public sector. The Strategy aims to identify the best agricultural practices for a sustainable production of different agricultural products. In 2021, the Office of Agricultural Policies and Studies (ODEPA) developed a system of indicators for the monitoring and tracking of this Strategy which is expected to be implemented in 2022. The Strategy’s governance as well as a first implementation plan are expected to be created in 2022.
In 2021, the Agriculture and Livestock Service (SAG), the animal and plant national agency, implemented some initiatives. The newly created Regulatory Committee aims to supervise and support the implementation of Good Regulatory Practices within SAG. The SAG Digital Affidavit was extended for land and airport border controls in addition to those carried out at Santiago’s Airport. SAG also updated its phytosanitary regulations, thereby removing a significant number of goods, such as highly processed wood, from the list of those subject to SAG’s inspections.
During 2021, SAG adjusted the organisational structure of its laboratories, establishing a Network of Laboratories with a central laboratory in the capital and regional laboratories across the country. A food safety department was created, conducting activities that used to be carried out by agricultural and livestock laboratories. These new laboratories became a plant and seed health laboratory and an animal health laboratory, respectively. A new law enacted in 2021, mandates norms on composition, labelling and commercialisation of fertilisers.
For animal health certification, the paperless electronic exchange was implemented with Russia and work-plans were signed in 2021 with Korea and the United States to be implemented during 2022. Progress was made with the countries of the Pacific Alliance to implement the electronic exchange of certificates through single windows by 2022. In phytosanitary certification, electronic certification was implemented with the Dominican Republic and tests were carried out with Panama, Ecuador, and Paraguay. On the other hand, import certification tests were carried out with Spain and France. The paperless exchange is expected to start with these countries during the first half of 2022.
In 2021, under the INDAP’s framework for Climate Change Adaptation Committee established in 2019, several workshops were carried out in the 16 regions of the country with the participation of more than 800 of INDAP’s beneficiaries and experts. Within these workshops an assessment was carried out to evaluate the main problems and potential solutions in terms of water access and climate risks for farmers. The main findings of the assessment and workshops will be finalised in 2022 and will be used as a basis for the design of public policies.
Lastly, the update of the climate change adaptation plan for agriculture has continued with the planned activities. This update includes the formation of 16 subnational technical committees, a governance structure officially established, the development of the participatory process in the 16 administrative regions of the country and the design of a pilot climate change adaptation plan in the Aysén region.
Domestic policy responses to the COVID-19 pandemic
In response to the health crisis of COVID-19, INDAP activated an emergency credit programme in 2021, benefiting 4 766 smallholders of certain areas of the country. Moreover, a special credit renegotiation measure was created for all INDAP credit beneficiaries, except for farmers with marketing credit “Creditos de Enlace”. The renegotiation implied that 50% of non-paid interests were written off, while repayment of credit principals was renegotiated taking into account the creditor’s payment capacity and, depending of the type of credit, up to a maximum of 10 years. This measure ended in 31 December 2021.
Lastly, the Ministry of Agriculture has been in direct coordination with other ministries in order to present and implement national programmes to reactivate the economy and employment, the Ministry of Agriculture and the Ministry of Labour developed a communicational strategy to inform about the compatibility of formal employment and public supports to people. The Ministry of Agriculture has also coordinated with the Ministry of Transport for the implementation of the Collaborative Logistic Plan (Plan de Logística Colaborativa) which aims to improve logistics of main port terminals of the Valparaiso region, in order to avoid supply chain disruptions and to improve their efficiency.
Trade policy developments in 2021-22
To deepen bilateral preferential trade, ongoing negotiations to broaden the Partial Scope Agreement (PSA) with India and modernise the FTA with Korea continued in 2021 and are expected to continue in 2022. Negotiations with the European Union and the European Free Trade Association (EFTA) continued in 2021. The negotiations for an FTA with Paraguay were concluded in 2021, with agreement pending approval by the Chilean Congress. During 2021, negotiations with Trinidad and Tobago began for a Partial Scope Agreement (PSA).
Access to the market for the People’s Republic of China (hereafter “China”) was agreed for live equines, as well as for 13 additional types of frozen fruits, chilled beef, sheep, and goat meat. Access to the Korean market was secured for live equines.
In 2021, Chile signed a Memorandum of Understanding (MoU) on agricultural co-operation with Indonesia. A MoU on agricultural co-operation was signed with the Philippines in January 2022, and another one is expected to be signed with Thailand during 2022. Negotiations will continue in 2022 for MoUs in mutual recognition of organic products certification with Korea, Japan, and China.
Chile has averaged a real GDP growth of around 4% since 2000 that helped it to become an upper middle-income country. Agriculture accounted for 4.2% of GDP and 7% of total employment in 2020. It has a dual structure, in which small-scale labour intensive farms co-exist alongside a large-scale commercial farm sector. Chile is a net exporter of agro-food products with a surplus of around USD 5.3 billion (excluding fish and forestry) in 2020. Agro-food products accounted for 17.3% of Chile’s total exports, and for 12.5% of its imports.
After a 6% contraction in 2020 as a consequence of the COVID-19 pandemic, Chile’s economy strongly rebounded and grew by 12% in 2021. The country’s unemployment rate decreased from 10.7% in 2020 to 8.9% in 2021, and inflation was around 4% the same year. 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 2020, 85% 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, in which 52% were for consumption and 24% for further processing in industry.
Productivity growth has been the dominant driver for Chile’s growing agricultural production. Supported by some additional use of primary and intermediate inputs into production, output growth averaged 2% p.a. and has been mainly achieved by improvements in total factor productivity (TFP), which has grown by an average of 1.2% per year over the period 2010 to 2019, slightly below the global average. Agriculture accounts for around 11% of Chile’s GHG emissions, similar to the OECD average but well above its contribution to the GDP. 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.
[3] OECD (2019), “Megatrends: Building Better Futures for Regions, Cities and Rural Areas”, Principles on Urban Policy and on Rural Policy, OECD Regional Development Ministerial, https://www.oecd.org/regional/ministerial/documents/urban-rural-Principles.pdf.
[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.