7. Chile
Chile’s support to farmers is among the lowest of OECD countries, at 2.6% of gross farm incomes in 2018-20, down from 7.3% in 2000-02. Since Chile reduced border protection during the first decade of this century, agricultural support creates very limited distortions to agricultural markets, with almost no market price support to the sector as domestic producer prices almost fully align with world prices.
Budgetary support to farms mostly targets small-scale farmers, mainly 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. At 4% of agricultural value-added in 2018-20, expenditures for general services were slightly below the OECD average. Total agricultural support represented 0.3% of GDP in 2018-20, half the ratio observed in 2000-02.
Chile’s focus during 2020 was to implement policies within a framework of the current administration’s four strategic pillars: (1) sustainability and water, (2) institutional modernisation, (3) promotion of farmer associativity, and (4) rural development. Nonetheless, due to the COVID-19 pandemic, some priorities were adapted and existing programmes or initiatives reinforced or put on hold. For example, public-private co-ordination initiatives were strengthened to guarantee the production and distribution of food across the country.
During 2020, new regulations applied to the PRODESAL and PADIS programmes, focused on improving smallholders’ wellbeing. These involved establishing bilateral agreements between the national government and 254 municipalities that implement those programmes. INDAP (the smallholders’ agency) and the Ministry of Public Works signed a strategic collaboration agreement to ensure potable water supplies for INDAP beneficiaries, seeking synergies between both institutions to promote rural development.
The animal and plant health agency (SAG) promoted electronic certification, now established for exports to 34 countries and covering around 70% of all phytosanitary certificates. It also provides for important development potential for sanitary certification.
At national level, Chile began to update its climate change adaptation plan for agriculture, with commitments by the sector in the National Determined Contribution (NDC). The plan has three objectives: (1) governance and co-ordination of sub-national adaptation planning in the agriculture and forestry sector in the country’s sixteen administrative regions; (2) a co-ordinated approach to the country’s general development policy and strategy; and (3) territorial implementation of a pilot project on climate change adaptation in the region of Aysén in order to evaluate and possibly scale up to other regions.
The Office of Agricultural Policies and Studies (ODEPA) is co-ordinating new actions of the Ministry of Agriculture on water. In 2020, three tasks were achieved: (1) the starting of the design of an action plan, that should provide guidelines on water resources for the agencies of the Ministry of Agriculture; (2) the creation of a water board that discusses and identifies main water concerns for agriculture; and (3) the creation of a technical working group on water resources within the Ministry of Agriculture.
Chilean agricultural policies involve almost no market distortions and producer support is low at an average 2.6% of gross farm receipts in 2018-20. Moreover, total support to agriculture imposes a smaller burden on the economy than in most OECD countries, accounting for only 0.3% of GDP in 2020.
Chile emphasises the provision of public services to the agricultural sector. As a result, general services account for around 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 agricultural value added, and could potentially be scaled up further.
Payments to farmers target small-scale agriculture and indigenous farmers, who potentially are most in need. While these payments 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 carried out systematically, as these payments account for about half of public outlays directed at the sector.
Given the rising number of support programmes targeting rural populations not directly implemented by the Ministry of Agriculture, improved co-ordination across ministries and agencies that provide support to the agricultural sector, and strong systems of evaluation, are key to ensuring efficient use of public resources.
Moreover, given the increasing number of support programmes developed by regional governments targeting rural populations, improved co-ordination, communication and accountability processes are needed between regional and national governments to avoid overlapping efforts and supports.
Chile positions itself as supporting strong climate action. Chile committed to a 30% emissions reduction by 2030 relative to 2007, and significant efforts, such as the climate change adaptation plan for agriculture, both mitigate greenhouse gas (GHG) emissions and adapt to climate change within the commitment made by the sector in the National Determined Contribution (NDC). This commitment will have important implications for agriculture.
Note: * Share of potentially most distorting transfers in cumulated gross producer transfers.
Source: OECD (2021), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
Source: OECD (2021), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
Source: OECD (2021), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
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 INDAP (the smallholders’ agency), SAG (animal and plant health), INIA (agricultural innovation), 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 Free Trade Agreements (FTAs) were signed, granting trade preferences to partners for agricultural products (OECD, 2008[2]) (Table 7.2).
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 2.6% 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.
Note: A/An/R/I:Area planted/Animal numbers/Receipts/Income
Payments not requiring production include Payments based on non-current A/An/R/I (production not required) and Payment based on non-commodity criteria. Other payments include Payments based on non-current A/An/R/I (production required) and Miscellaneous payments.
Source: OECD (2021), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
Main policy instruments
Agricultural policy remained mostly unchanged over the past ten years, emphasising the development of small-scale agriculture, improvement of sustainable productivity and competitiveness, and conservation of natural resources.
Around half of budgetary expenditures are direct payments to small-scale farmers. These include various input subsidies and access to credit at preferential interest rates; subsidies for fixed capital formation, in particular improving degraded soils; and on-farm services like producer association programmes for small-scale and indigenous farmers.
The second half of budgetary expenditure finances 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.
Open trade helped Chile become an important producer and exporter of agricultural and food products such as fruits, vegetables, dairy products, poultry, pig meat and wine. Moreover, MPS declined over time as MFN tariffs for agricultural products fell to 1%.
Domestic policy developments in 2020-21
The year 2020 was dedicated to the implementation of policies within the framework of the four strategic pillars of the current administration: a) sustainability and water, b) institutional modernisation, c) promotion of farmer associativity, and d) rural development. Nonetheless, due to the COVID-19 pandemic some of the priorities were adapted and while some existing programmes or initiatives were reinforced others were put on hold. For example, public-private co-ordination initiatives were strengthened to guarantee the production and distribution of food across the country.
The Institute for Agricultural Development (INDAP) – an agency promoting smallholders’ agriculture – continued modernising the governance of three of its emblematic 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). New regulations (now more focused on the improvement of smallholders’ wellbeing) were applied for PRODESAL and PADIS during 2020. These regulations involved the creation of national/local agreements with 254 municipalities that implement those programmes. New rules to the SAT programme were also established, which now require business plans for beneficiaries. An investment subsidy and a new credit line were also incorporated into this programme.
During 2020, INDAP and the Ministry of Public Works signed a collaboration agreement to provide potable water for INDAP beneficiaries and seeking synergies between both institutions to promote rural development such as better water management in agricultural activities.
The rural development initiative in the Araucania Region was created in 2020 and aims to develop a modern and sustainable agriculture by focusing on three strategic lines: 1) Rural Development; 2) Foster productive diversification; and 3) Associativity and market. Several programmes were created to strengthen small-scale agriculture under this initiative.
Around 83% of the area of Chile belongs to rural municipalities (263 of the 346), where 25.5% of the national population lives. The Ministry of Agriculture is working to improve the quality of life of the rural population and reduce the gaps with respect to those living in urban territories. For this, the National Rural Development Policy was published in May 2020, which aims to improve access and quality of public services and connectivity in rural areas. This initiative also seeks to guide actions, programmes, and projects of different Ministries by developing a better targeting and avoiding overlapping.
As part of, the national plan “Más Unidos” (“working closely”), that aims to encourage farmers’ associations, the Ministry of Agriculture began during 2020 the development of a strategy for associations within the agricultural, livestock and forestry sectors which will be the reference framework for the next ten years.
During 2020, the animal and plant health agency, the Agriculture and Livestock Service (SAG) promoted the electronic certification in its different modalities, reaching 34 countries, transmitting around 70% of the total phytosanitary certification and with an important development potential for zoo-sanitary certification. This tool has allowed to maintain the commercial flow, speed-up processes, improve communication among all actors and facilitate the exchange of agricultural, livestock and forestry products by eliminating the use of paper in port procedures.
The final draft of the “Sustainability Strategy for the Chilean Agri-food Sector” was submitted during November 2020 to stakeholders (farmers associations, agribusiness associations, academia, NGOs, and public sector). The draft included three general dimensions: 1) environmental dimension (i.e. water, soil, climate change, biodiversity and ecosystem services), 2) social dimension (i.e. relationship with local communities, labour regulations, healthy food and food safety), and 3) economic dimension (i.e. resilience, market development and competitiveness).
In April 2020, the Office of Agricultural Policies and Studies (ODEPA) established a technical board, bringing together experts from SAG and INDAP, to prepare a proposal for updating the emblematic Programme of Incentives for Agro-Environmental Sustainability of Agricultural Soils (SIRDS-S). The idea is to maintain the focus of the programme on recovering the productive potential of degraded soils but in a more sustainable way.
At national level, Chile began to update its climate change adaptation plan for agriculture, within the framework of compliance with the commitment made by the sector in the National Determined Contribution (NDC). The plan has three main objectives: 1) establishment of a governance and co-ordination of sub-national adaptation planning in the agricultural and forestry sector in the sixteen administrative regions of the country; 2) alignment of the country’s general development policy and strategy; and 3) start the territorial implementation of a pilot project on climate change adaptation in the region of Aysén in order to evaluate and potentially scale up to other regions.
ODEPA is co-ordinating new actions of the Ministry of Agriculture on water. In 2020, three tasks were achieved: 1) the starting of the design of an action plan that should provide main guidelines on water resources for the agencies of the Ministry of Agriculture; 2) the creation of a water board for agriculture; and 3) the creation of a technical working group on water resources within the Ministry of Agriculture.
Domestic policy responses to the COVID-19 pandemic
In response to the health crisis caused by COVID-19, INDAP decided to postpone the expiration date of all credit operations (credits, extensions, renegotiations) from March to June. This extension was automatic, and only implied the change of the due date, without affecting the rest of the original conditions of the credit, nor the risk category, 17 225 farms benefited from the extension. Moreover, INDAP created a special credit renegotiation programme for all its credit beneficiaries, in which 50% of the interest is written-off. The rest of the debt is renegotiated according to the farmer’s payment capacity.
Moreover, INDAP made more flexible its irrigation programme regulations to smallholders (e.g. rescheduling of debts, reduction of interest rates) and increased its credit allocations. Moreover, the National Irrigation Commission (CNR) implemented an easing of requirements to apply to the instruments of Law No. 18.450 (on-farm irrigation subsidies) for the promotion of private investment in irrigation.
To avoid major disruptions in the agro-food chains during the pandemic, the Ministry of Agriculture established a public-private co-ordination, the Safe Supply Committee (Comité de Abastecimiento Seguro), with the participation of different stakeholders, including the private sector, to co-ordinate joint actions and centralise information. Additionally, ODEPA maintained its monitoring and continuous dissemination concerning the evolution of producer and consumer prices and import prices. Furthermore, a series of actions were launched:
Creation of a Council of Ex-Ministers of Agriculture, as an advisory body of a consultative nature, whose function has been to advise the Ministry of Agriculture in the management of contingencies that put the functioning of the food chains at risk.
Meetings of the Council of Ministers of Agriculture of Americas, which reunites 35 ministers of agriculture of the Americas, to ensure the food supply of the region and learn from the experiences of other countries.
Identification of critical points in the entire food chains (production, distribution, commercialisation) and permanent monitoring of the national and international markets, through ODEPA. This monitoring has identified, in a timely manner, the areas where the support of the ministry is necessary to unblock bottlenecks of the supply chains of agricultural products.
Co-ordination with local authorities to ensure the operation of local markets and street markets (Ferias libres).
Creation of a website1 with official information on the sanitary situation, protocols for agricultural facilities and a Manual of Good Hygiene Practices in street markets (Ferias libres).
All administrative procedures of the Ministry of Agriculture agencies started to be carried out online.
The government implemented an emergency income support for families that experienced a reduction in their incomes. This support has been maintained in 2021.
Food baskets are delivered to the poorest families with schoolchildren who normally get food at school canteens but have been affected by the suspension of classes.
The programme (Food for Chile/Alimentos para Chile) provided food baskets to the poorest families that were affected by the lockdowns in 2020. It delivered around 5.6 million baskets with food and hygiene products.
Trade policy developments in 2020-21
To deepen bilateral preferential trade, Chile is broadening the Partial Scope Agreement (PSA) with India, in force since 2007 and once modernised in 2017. Ongoing negotiations with the European Union continued in 2020. Negotiations with the European Free Trade Association (EFTA) continue during 2021. During 2020, Chile and Paraguay began their negotiations for a Free Trade Agreement, the first round of negotiations was held in 2020 and the next rounds will continue during 2021. In the context of the Brexit, Chile and the United Kingdom have signed an agreement that entered in force on 1 January 2021.
Access to the market for the People’s Republic of China (hereafter “China”) was secured for pears, hazelnuts (without shell), citrus fruits, honey and bee products; access to the Indian market was secured for blueberries, avocados, nuts with/without shell; and access to Viet Nam was secured for apples. At the Chilean border control, the SAG’s Import Information System (SIIS) was also implemented, enabling a paperless registration connected with customs agencies and importers.
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 3.9% of GDP and 9% of total employment in 2019. It has a dual structure, where 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 billion (excluding fish and forestry). Agro-food exports were around 18% of total exports of the country.
In 2020, Chile, like most of countries, was hit by the global pandemic. Consequently GDP growth was negative and the unemployment rate increased. Chile’s agricultural and agro-food sector has been successful in adding value to the production of primary commodities, by producing more differentiated products like temperate fruits and processed products such as wine. In 2019, 87% of exports were mostly products for final consumption, both primary and processed, and only 13% were products for further industrial processing. Agro-food imports are mostly processed products, where 61% are for consumption and 24% for further processing in industry.
Sources: OECD statistical databases; World Bank, WDI; and ILO estimates and projections.
The agricultural sector has played a key role in Chile’s economic success, both benefiting from stability and reforms, and making an important contribution via strong output and exports growth. Productivity growth has been central to Chile’s agriculture. With a relatively stable 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 1.9% per year over the period 2007 to 2016, slightly higher than the global average. Agriculture contributes with around 11% of GHG emissions, while only 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.