AGEC 4210: Group 4 - Chile

A Study of Agriculture and Economic Growth

Presented to: Professor Spencer Henson By Maximiliano Nava-Espinosa Lukeman Masuen James Mardall Cameron Wagg AGEC 4210 – Fall 2004


AGEC 4210: Group 4 - Chile

1. Introduction and Background 1.1 - Introduction 1.2 - History 1.3 - Geography 1.4 - Natural Resources 1.5 - Demographics: Employment, Income and HDI 1.6 - Economy 2. Agricultural Production in Chile 2.1 - The Role of Agriculture 2.2 - Agricultural Production 3. Role of Agriculture in Chilean Livelihoods 3.1 - Land Tenure 3.2 - Impacts on Traditional Rural Farming 3.3 - Agriculture and Chilean Natives 4. Parastatals, Policies and Trade 4.1 - International Trade 4.2 - Canada Chile Free Trade Agreement (CCFTA) 4.3 - Agricultural Institutions and Parastatals


AGEC 4210: Group 4 - Chile

5. Current Issues and Development Needs 5.1 - Poverty and Inequality 5.2 - Education 6. Constraints 6.1 - Summary of Constraints 6.2 - Land Constraints 6.3 - Capital 6.4 - Labour 6.4 - Technological Inputs 6.5 - Transportation and Trade 6.6 - Environmental Issues 6.7 - Trade Policy 7. Future Developments in Agriculture 7.1 - Collaboration with Canada 7.2 - Other Sources of Aid 7.3 – International Promotion of Chilean Products 8. Conclusions 9. Figures and Tables 10. References


AGEC 4210: Group 4 - Chile

1. Introduction and Background
1.1 - Introduction This paper is a summary of the findings of the 2004 AGEC 4210, Group 4 presentation on Chile. The paper focuses on Agriculture and more specifically, on the contribution of agriculture to the economic growth of Chile. Chile is a development anomaly amongst those countries classified by the World Bank and other development organisations as developing countries. Of all the countries investigated by the 2004 AGEC 4210 class, Chile has the most similarity to a developed country in terms of economic and development measures, this paper aims to investigate this and determine the role of agriculture in Chile’s development. 1.2 - History Although Chile is currently prospering under the Lagos presidency, it has a turbulent and at times despotic historical endowment. To illustrate this, a brief summary of Chile’s recent political past in chronological order follows (BBC 2004 a): 1891: Conclusion of civil war, the position of president is reduced to a figurehead. 1925: Increased presidential powers and separation of church and state. 1927: Gen del Campo (Army) seizes power and establishes a dictatorship.


AGEC 4210: Group 4 - Chile

1938-46: Communists, Socialists and Radicals form Popular Front coalition – government policies are based on US New Deal. 1948-58: Communist Party banned. 1952: Gen Ibanez (Army) assumes role of president and promises to strengthen law and order. 1964: Montalva (Christian Democrat) – elected president, introduces cautious social reforms, but fails to curb inflation. 1970: Allende (Marxist) – Becomes Chile’s first democratically elected Marxist president and instigates nationalization and Radical social reform. 1973: Gen Pinochet (Army) murders Allende in a CIA sponsored coup, establishes a dictatorship and privatises national assets. 1988: Pinochet loses a leadership referendum. 1989-90: Aylwin (Christian Democrat) – elected president. 1994-95: Eduardo Frei – elected president (reduces the military's influence in Chilean society). 2000: Ricardo Lagos – elected president and current president (2004) 2004: New law gives Chileans right to divorce and Supreme Court strips Pinochet of his Senatorial immunity. 1.3 - Geography Chile is located along the West coast of the South American continent. The country is over 4300 km’s long from its Northern most point (600 km’s above the Tropic of Capricorn) characterised by desert vegetation and bordering Peru. To its Southern most point (the Magellan Strait, 1400 km’s from Antarctica) characterised by Antarctic vegetation and the confluence of the Atlantic and Pacific Oceans. Chile stretches across several lines of Latitude from its Northern most point to its Southern most point, but has an average width of only 165 km’s.


AGEC 4210: Group 4 - Chile

Along its West coast, Chile is bounded by the Pacific Ocean, while the Andes Mountain range creates a natural border down its entire Eastern boundary. On the Eastern side of the Andes are Bolivia to the North and Argentina to the South (BBC 2004b). The varied Bioregions of Chile are a consequence of the Topography and the atmospheric temperature differentials, which occur between the Pacific Ocean currents and the Andes Mountain elevations, as well as the various Latitudinal climatic regions. These factors have created vastly different and unique Bioregions along the length of Chile. As a consequence of these factors, the North of Chile around the towns of Iquique and Antofagasta is extremely dry and hot, receiving very little rainfall. The Central region around the capital and largest city Santiago (founded in AD 1541) has a Mediterranean climate with a moderate rainfall, and is well fed by streams from Andean Mountain snowmelt. And the Southernmost town of Punta Arenas lies just north of the Antarctic Circle. (U.S. Library of Congress 1994). 1.4 - Natural Resources: The economy of the Northern region of Chile relies on the abundance of its sea fisheries and mineral wealth (copper, silver and nitrates) and hosts the world’s largest open pit copper mine at Chuquicamata. The Central region is the economic, industrial and agricultural hub of Chile, producing large quantities of fruits, berries, staples and wine. Chile’s geographic location means it can supply the Northern


AGEC 4210: Group 4 - Chile

Hemisphere with fresh fruit exports throughout their winter months (U.S. Library of Congress 1994). The South of Chile has large pastures, forests and plantations suitable for the rearing of livestock (both cows and sheep - for meat, dairy and wool) and production of lumber based products. The South also hosts several fresh and salt-water aquaculture production facilities. The Southernmost area of Chile around the Straits of Magellan is the site of Oil and Natural Gas extraction facilities (U.S. Library of Congress 1994). 1. 5 – Demographics: Employment, Income and HDI: Over the fifty-two year period from 1950 – 2003, Chile’s relatively small population has more than doubled from just over 6 Billion to 15.8 Billion people. Although Chile has a land area of 756,600 km², the population density in 2000 was less than 20.1 people/km², less than half the world average of 45.1 people/km² (World Bank Group 2002). More than 86% of Chile’s population live in urban centers and more than 72% of urban dwellers live in the capital city Santiago (Agriculture and Agri-Food Canada 2002a, Resources Institute 2004). Figure 1 (Chile Employment Data) indicates that the agricultural sector employed 12% of the workforce in 2000. However, this may not fully account for employment generated by agricultural value adding, in either the industrial or service sector of the economy. With regards to income equality Chile is ranked 18th with a GINI index of 56.7, (100 being perfectly equal) out of a list of 117 World


AGEC 4210: Group 4 - Chile








distribution of income shown in Figure 2 shows that 40% of the population have access to approximately 10% of the Income. The World Bank estimated Chile’s unemployment levels at 8.3% in 2000, down from 10.4% in 1980 (World Bank Group 2002). Chile is ranked 43rd out of 177 countries in the 2002 UNDP’s Human Development Index (HDI) report and has improved every year since 1975. In terms of a comparison with Canada, Latin America and the World (as can be seen by Table 1), although ranked lower than Canada, Chile is well above the World Average and is significantly above the Latin American level of development (UNDP 2004). 1.6 – Economy According to the World Bank in 2003 (see Figure 3) the agricultural sector alone accounted for 8.8% of Chile’s Gross Domestic Product, down from 9.2% in 1983 (World Bank Group 2002), while 32% of Chile’s GDP in 2000 was derived from total exports (World Resources Institute 2004). Chile's export commodities are predominantly natural resource based and in 2000 had the following breakdown: copper (37% of total exports), other metals and minerals (8.2% of total exports), fish and fishmeal 9.8% (of total exports), fruits (8.4% of total exports) and wood products (7.1% of total exports). Agriculturally related commodities thus contributed 25.3% of Chile’s total 2000 exports (Agriculture and Agri-Food Canada 2002a).


AGEC 4210: Group 4 - Chile

Chile is characterised by the World Bank as a high Growth Economy with a projected GDP growth rate of 4.2% over the 2003 – 2007 period (World Bank Group 2002). According to the World Bank, Chile’s level of education is likely to continue to have a considerable impact on both economic efficiency and economic equity. The 1997 report does note that Chilean inequality is high by International standards and has remained largely static since 1987 (World Bank 1997). This does not however alter the fact that the overall level of poverty has declined along with the consistent growth of the Chilean economy since 1975. This is clearly illustrated by the graph in Figure 4 (World Resources Institute 2004).

2. - Agricultural Production in Chile
2.1 – The Role of Agriculture Chilean agriculture is the large and dynamic foundation of the nation’s economic development. The liberalization of Chile’s markets has increased the demand for specialized agricultural goods, such as; frozen, packaged and canned vegetables and fruits. As well as wine, livestock and fish products for export. Various programs and institutions have been set up under the ambit of the Chilean government, to increase the production and quality of the agricultural sector through value adding. This has allowed Chile to enter new global markets for agricultural goods such as organic foods. This is increasing the demand for Chilean products by the markets of the Developed Countries. (Agriculture and Agri-Food Canada 2002a).


AGEC 4210: Group 4 - Chile

2.2 – Agricultural Production Figure 9 shows the large increase in Chile’s fertilizer use beginning in the 1980’s. This agricultural land enhancing input, along with others, has increased crop yields throughout the past few decades. Chile currently produces an average yield of 4453 kg per ha with almost 80% of its agricultural land having access to irrigation (Agriculture and Agri-Food Canada 2002b). There has also been an increase in the production and export of forestry products, fish and aquaculture products, as shown in Figure 10. The increase in the demand for Chilean products is also attributable to Chile’s many bilateral and multilateral free trade agreements (World Resources Institute 2004). The agricultural sector employs 33.8% of Chile’s labour force while contributing 9% to the GDP and 10.5% of total exports (Agriculture and Agri-Food Canada 2002a) this can be seen in Figure 7. Chile exports approximately 4.6 billion US$ worth of agricultural goods a year, while importing only about 1 billion US$ a year (see Figure 8 for breakdown of imports) (Agriculture and Agri-Food Canada 2002b). Chile has thus managed to turn a historical inability to feed its own people into a successful trade surplus. Due to Chile’s unusual geography covering many bioregions, shown in Figure 5, agricultural land is limited. In the northern region of Chile, the climate is arid and vegetation cover sparse, conditions which are unsuitable for most agricultural practices. These harsh conditions do not extend into the ocean and much of Chile’s natural offshore fisheries occur in this region.


AGEC 4210: Group 4 - Chile

In the geographical centre of Chile the conditions are prime for agriculture and most of the productive croplands occur in this region. The major agro-food industry activities are located in the central region surrounding Santiago. The Mediterranean climate is well suited to the production of wheat, corn, grapes, beans, sugar beets, potatoes and fruit. The southern region of Chile is a forested, with large grasslands in the southeast corner. This area is offers excellent pasture lands, as well as forestry contributing to a majority of the production of beef, wool, timber and fish. Chile’s major aquaculture farms are located in this area, amongst the many islands off the west coast (FAO 2004). Chile’s varied climatic regions have resulted in a large variety of different agricultural practices. Figure 6 shows fruit and livestock to be the largest agricultural outputs contributing to Chile’s agricultural GDP.

3. The Role of Agriculture in Chilean Livelihoods
3.1 - Land Tenure Chile has become for the most part, agriculturally self-sustaining and as a result, food secure. But, the dramatic changes due to changing political leadership and subsequent land reform have reshaped the role of agriculture within the past century. Prior to the 1960’s, agricultural practices were based around large family estates hiring rural labour to work the land, sometimes over 200000 ha of agricultural land. Aside from a low wage, labourers were often given a small portion of land (2 ha) to farm for their own subsistence and income.


AGEC 4210: Group 4 - Chile

The historical changes in government, from Marxism in 1970, to Military dictatorship in 1973, to the modern era of democracy 1988 to present. Has meant that the agricultural models of land tenure have also changed over time. Agricultural land was expropriated and redistributed during the Marxist era and after the subsequent military coup, some of the former land rights were restored to the original owners. As a result of the coup and world economic crises during the late 1970’s Chile faced recession and runaway inflation. Traditional, labour intensive and low productivity estates faced bankruptcy. Land was auctioned off to urban businessmen looking to capitalize on market interests globally and domestically, as well as modern technological inputs shown to increase commercial productivity (Armstrong 2004). 3.2 – Impacts on Traditional Rural Farming Although the agriculture sector has been a major foundation for Chile’s continued economic success, there have been adverse effects. The industrialization and commercialization of the agriculture sector in Chile have marginalised the rural and traditional farmers. Their reliance on agriculture for annual income is around 16%. The success of the industrial and services sectors, however, have made traditional forms of agriculture increasingly difficult. This has occurred as a result of free market competition in an economy dominated by modern, efficient, commercial farms. Many small rural farmers have left their own agricultural practices, to either work on commercial farms or migrate to the urban areas to seek work in the industry and services sectors (CAFOD 2004).


AGEC 4210: Group 4 - Chile

3.3 – Agriculture and Chilean Natives The rural native communities, which represent about 10% of the total population, are a prime example of small farmers currently being marginalized by the large-scale commercial focus of the Chilean agricultural markets. This is argued to be a result of unresolved political issues regarding Chile’s native communities and their lack of inclusion in modern Chilean institutions (CAFOD 2004). The Mapuche are a major indigenous culture located in the centre and south of Chile. The Mapuche people have been marginalised since 1883, forfeiting much of their ancestral land to Chile’s economic progress. With the heavy increase in lumber production from old growth clear cutting and modern commercial plantations (seen in Figure 10), as well as large scale export oriented soybean production. Land issues and Mapuche rights have become a major modern day social issue. Major industrialization and infrastructural projects (Textile

Factories and Hydroelectric Dams), have occurred on traditional Mapuche lands without their input and inclusion. Much of the current Mapuche dissent is focussed on the practises of logging companies operating on Mapuche lands. However, the Chilean government cannot afford to allow the Mapuche to be autonomous, due to a "lack of economic resources" (Mariqueo and Llanquilef 1998).

4. Parastatals, Policies and Trade
4.1 - International Trade Chile is an associate member of MERCOSUR a trade bloc comprised of Argentina, Brazil, Paraguay and Uruguay and created in March 1991.


AGEC 4210: Group 4 - Chile

In 1996 Chile and Bolivia established associate agreements with MERCOSUR. Bilateral negotiations are also underway with Peru, South Korea and in a longer-term multilateral process, the European Union and the United States. Preliminary negotiations for agreements with Singapore, New Zealand and Japan are also being undertaken. Chile has also signed bilateral investment protection agreements with 45 countries, to prevent Capital Flight and Nationalization in times of crisis (Agriculture and Agri-Food Canada. 2002a). Some of Chile’s bilateral trade agreement partners include; Canada, Mexico, Venezuela, Ecuador and Costa Rica. Chile’s bilateral trade has given Chile direct access to these foreign markets. However, the Chilean Government imposes import tax on fertilizers, industrial goods and capital goods, making agricultural inputs more expensive. The Chilean use of import tariffs and barriers do not apply to MERCOSUR members as well as to some North American and European countries. As a result, these markets can pick and choose what trade they want to import from Chile. 4.2 – Canada Chile Free Trade Agreement (CCFTA) Political relations between Canada and Chile are excellent and have been growing steadily since the signing and implementation of a bilateral free trade agreement resulting in the increasing trend in trade revealed by Figure 11. Canada has supported applications for Chilean membership in APEC and NAFTA, positions that have added to Chile’s growing political partnership with Canada. The FTA between Chile and Canada has led to a number of additional agreements, including environmental and labour agreements, a double taxation agreement as well as a Memoranda of Understanding in agriculture and environment (Agriculture and Agri-Food Canada. 2002b).


AGEC 4210: Group 4 - Chile

4.3 - Agricultural Institutions and Parastatals The modern Chilean government actively participates in the regulation and control of the Agricultural sector of the economy. In order to achieve economic growth and progress, vertical and horizontal linkages are encouraged through the following national institutions: CORFO - Agricultural Insurance (1939): Co-financing of farm insurance from 50% (large farms) – 80% (small farms) of the premium depending on the farm and crop CIREN - Natural Resource Information Centre (1960): Provides Information on Soil, Geology, Hydrology, Geomorphology to the Agricultural Sector. INDAP – National institute of Agricultural Development (1962) An independent institute "to promote the development of the rural family agriculture." Through water projects, recovery of degraded fields, Rural Tourism, the youth, training for rural woman and the delivery of credits and subsidies. INDAP partnerships include: • • • • • INDAP-PRODEMU: Traditional Arts and Crafts. INDAP-CONADI: Water Works in Rural areas. INDAP-Credit Institutions: Micro-financing and Subsidies. INDAP-Bank of the State: Micro-financing and Credit Extension. INDAP-PROCHILE: International Trade promotion.

INFOR - Forestry Institute (1965): Research and Development of the forestry sector.


AGEC 4210: Group 4 - Chile

CNR - National Centre for Irrigation established in (1975): The National Commission of Watering is a public organism that is related with the Government through the Ministry of Agriculture that has for mission to Coordinate the national politics of watering, for the good use of the hydrological resources of the country with emphasis in the watering and the drainage. FIA - Foundation for Agricultural Innovation (1981): Promotion of innovative agricultural processes. FUCOA Agricultural Foundation for Communication and

Training (1982): Dissemination of Agricultural Information and media. ODEPA - Office of Studies in Political Agriculture established in (1992): Provides regional, national and international information to Forestry, Agriculture and Livestock sectors. SAG - Livestock Services: Livestock health and quality. CONAF National Forestry Corporation: Optimising the

commercialisation and industrialisation of forestry sector. INIA - National institute of Agricultural Research: Agricultural Biotechnology partnerships. (Government of Chile) and Research for public and private


AGEC 4210: Group 4 - Chile

5. Current Issues and Development Needs
5.1 – Poverty and Inequality If poverty was measured with rigorous and realistic approaches, more than half the Chileans could be considered near poverty. (Figure 2 displays this trend, with 40% of the population having access to only 10% of the wealth). Chile has become one of the most income inequitable countries on the South American continent due to the inability of traditional farmers (mainly the Mapuche nation) to cope with structural adjustment measures implemented since the 1970’s. The 1990’s trickle down effects of economic growth have never materialised for many of the marginalized traditional farmers either. Many of the institutions mentioned earlier in section 4.3. predominately favour capital and technology intensive large-scale agriculture. And have biased agricultural access to subsidies, leading to the exploitation of natural resources and the degradation of catchments. The Chilean Government has demonstrated that a high and sustained rate of overall economic growth, doesn't necessarily equate to development. Although overall poverty levels have decreased from 33% in 1990 to around 19% in 2002 (World Bank 2002), this has not substantially changed the standard of living for the rural poor. On the contrary, after more than a decade of 7% annual growth the divide between rich and poor, shown in Figure 2, has not decreased. As a consequence, Chile is one of the most inequitable countries in Latin America, along with Brazil and Colombia.


AGEC 4210: Group 4 - Chile

To their credit, the Chilean Government has begun to recognize the problem of inequality and have begun to address issues surrounding traditional rural communities. However, many civil rights groups feel that the government’s efforts are not enough and have made the following proposals in order to reduce this gap in equality. 1. Better natural resource management. 2. Increased taxes on mining. 3. Increased personal income tax for the rich. 4. Reduction of unfair subsidies to companies. 5. Partial elimination of capital import subsidies. 6. To increase public savings and to diminish expenses that benefit only the richest in Chilean society. 7. To reallocate the public saving where it is most needed. 8. To improve pensions. (Sustainable Chile) 5.2 – Education Over the last few decades the education system in Chile has been subject to the guiding hand of the free market. This has increased the access problems to education that the traditional rural impoverished communities face. Education is important to these communities, particularly with regard to learning about access to agricultural inputs and technologies.


AGEC 4210: Group 4 - Chile










individualism and competition for entry thus degrading the community spirit and culture. Towards the beginning of the 1980´s, a quarter of the schools were privatized. By 1999 the number of privately run schools had more than doubled, thus increasingly restricting access of the poorer portion of Chile to education. (Sustainable Chile)

6. Constraints
6.1 – Summary of Constraints Before 1974, Chile’s primary exports were traditional crops – beans, lentils, and wool (US Dept of Agriculture 1992). However, since 1974, agriculture has changed dramatically across Chile. Under the neo-liberal export model, production has intensified and become oriented to exportation. Private companies have flourished, supported by government subsidies. The explosive growth of the fruit and forestry industries are a case in point. Traditional rural agriculture has declined dramatically and

production for the national market has been relegated to marginal, unproductive land. People who previously grew their own crops have been forced to sell their land and seek other sources of income (Oxfam 2003). An examination of agricultural capacity in Chile shows that despite gains made in productivity from commercial agriculture which utilize land enhancing technology, Chile’s agricultural sector is not operating at full capacity. The key constraints are imbedded in four


AGEC 4210: Group 4 - Chile

major determinants of Chilean agricultural capacity: Land, Capital, Labour, and Technology (Zivin et al 1996). 6.2 – Land Constraints Chile’s total land area measures 748,800 km². Agricultural farmland accounts for an estimated 5% of the total land area with the actual arable portion accounting for only 2.65%. Permanent pastures constitute 18% and forest woodland 22%. The size of irrigated land is 12,650 sq km (Agriculture and Agri-Food Canada 2002b) (CIA World Fact Book 2002). Because Chile has limited arable land area, expanded agricultural production is limited without the use of land enhancing technologies (Zivin et al 1996). Land is a key constraint for both commercial and small agricultural producers. Capital, labour and technology constraints exert heavier burdens on the small farmer than the commercial farmer. The small farmer also has to contend with lack of support from government institutions that have traditionally been geared toward the commercial farm sector. Constraints for the commercial farmer come from these areas: transportation costs; over exploitation of natural resources; trade barriers in the form of sanitary/phytosanitary requirements imposed by trading partners on Chilean agricultural exports and regional crises (i.e. the 1992 Argentina Crisis which affected economic stability and trade in Latin America).


AGEC 4210: Group 4 - Chile

6.3 – Capital In Chile, capital is mostly a constraint for the small farmer. They lack capital to buy key inputs and do not largely benefit from agricultural subsidies or subsidized credits, because the government provides very little to them. There is however one institution, INDAP – which provides subsidized credits to small farmers (Joshua Zivine et al 1996). For the small farmers who are not supported by INDAP however, their only alternative for formal loans is through the bank. But because small farmers are unable to guarantee these loans, they are often left without any access to credit. Their situation is made worse, by the fact that in Chile, the cost of living relative to agricultural income is rising (Zivin et al 1996). A Commercial farmers experience with access to capital is quite different to that of a small farmer. They have the collateral needed to guarantee loans with financial institutions, and enjoy the added benefit of being charged lower interest rates than the small farmers. Where commercial farms have problem with loans is that they are extended in denominations of “Unidad fomento”. This signifies a peso amount plus inflation and when this is compounded by currency fluctuations, it can cut into their profit and income (Zivin et al 1996). 6.4 – Labour Agricultural labour markets in Chile tend to operate on a seasonal basis (Zivin et al 1996). Commercial farmers utilize capitalintensive processes to harvest and process their crops, and labour supply in this sector is mostly based on long term contracts, thus avoiding fluctuations in labour supply (Zivin et al 1996).


AGEC 4210: Group 4 - Chile

In the Horticulture sector, demand for labour is very seasonal and fluctuates significantly over the course of the season. During harvest when demand for labour is highest and when fruits need to be picked within a certain period. Seasonal workers understanding the time sensitivity, routinely exercise leverage by demanding higher wages from farmers during harvest time by threatening to delay the harvest if higher wages are not paid. Large scale Horticulture producers can afford to pay more, but small farmers who cannot afford do so are left to harvest what they can, utilising their own resources. When these resources are depleted, they routinely leave a significant portion of their crop unharvested (Zivin et al 1996). 6.4 – Technological Inputs Another constraint, which the small farmer faces, is that they are often neglected by INIA – the institute for Agricultural Research, mandated to carry out cutting edge research to benefit Chilean Agriculture. Even when included, the technologies advocated by INIA are often beyond the financial means of small farmers. Commercial farmers on the other hand benefit tremendously from INIA’s research, because INIA’s research and development is designed to suit their needs. For example, research projects which seek to give table grapes fungal resistance genes in order to make them survive long distance transport. Table grapes are predominately produced by commercial farmers for export and Funding for this project is provided by several sources, amongst which are FUNDEL – a


AGEC 4210: Group 4 - Chile

Chilean granting agency, Fundacion Chile, Agricola Brown and other US agricultural multinational interests. 6.5 – Transportation and Trade Chile’s remoteness and distance from its major markets in U.S, Japan and EU translate into huge transportation expenditure (Zivin et al 1996). This expenditure means that Chilean producers have to explore ways to ensure that their goods are produced at the lowest possible cost. Economies of scale ensure that commercial farmers are able ensure a low per unit cost of their produce, whereas small farmers cannot. Non-Tariff trade barriers like sanitary and phytosanitary

requirements are further constraints to Chilean agricultural trade. This has ensured that Chilean agro-industry has had to develop in line with the strict entry requirements of their foreign markets. These barriers have the potential to block agricultural products from reaching foreign markets in developing countries. And also provide a significant barrier to market entry for the small farmer, who are mostly confined to sales within the local market for this reason (Guillen et al 2003). 6.6 – Environmental Issues Overexploitation of deep-sea fisheries has seriously affected the viability of Chile’s commercial fishing industry. Chile has attempted to diversify the risk of relying on this individual resource, by developing commercial aquaculture facilities. Through the rapid growth of aquaculture, Chile has become the world's second largest exporter of farmed salmon after Norway, this is not without controversy however.


AGEC 4210: Group 4 - Chile

At present, “industrial aquaculture is destroying Chile's coastal habitat and native biodiversity. In addition to polluting chemicals and excrement, a recent study shows that the current level of waste generated in Chile's salmon farming region is equivalent to the amount generated by the nation's capital city, Santiago” (Menotti et al 2003). 6.7 – Trade Policy During the period 1998 to 2003, Chile negotiated new

agreements or strengthened existing agreements with their Latin American trade partners. Canada, and the EU. already in force It also negotiated free trade agreements with some of its main trading partners outside the region i.e. Korea, Chile’s agreement with the European Union is Chile’s Congress is currently examining and

agreements with the United States and Korea. Chile’s goal is to conduct 75 per cent of its foreign trade, free of tariffs, implying a potential preferential market for producers in Chile. Chile has concluded 50 agreements for the reciprocal promotion and protection of investments as well as 37 air transport agreements and 13 double taxation agreements. Chile is at present lobbying aggressively for a free trade agreement with America. Chile also regularly works within the WTO trade framework (World Trade Organization 2003)


AGEC 4210: Group 4 - Chile

7. Future Developments in Agriculture
7.1 – Collaboration with Canada As an example of the efficacy of the CCFTA, on January 25 2001, Canada’s Minister for International Cooperation, the Minister for Agriculture and Agri-Food, announced that Canada would contribute up to $755,000 for a three-year crop insurance project in Chile. The Canadian International Development Agency (CIDA) and Agri-Canada are set to work with the Government of Chile to improve conditions for the farming population of Chile. The goal of the crop insurance program is to help a significant number of Chilean farmers manage risk and become more self-reliant. By improving employment and social protection systems for the 700,000 Chileans who derive their income from the agriculture sector, the Canadian and Chilean governments aim to lessen rural vulnerabilities and improve rural livelihoods in Chile (CIDA 2001). 7.2 – Other Sources of Aid Chile has become a high priority development site and a symbol for development in Latin America, since the economic collapse of Argentina and the beginning of the Venezuelan Chavez era. Between 1990 and 1993, Chile received $29,992 millions in aid loans; $5,892 in grants; and $18,299 million in cumulative official development assistant (ODA) from Japan alone. As a proportion this represents 29% of Chile’s total ODA. Other principal aid and ODA donors to Chile in the same period were; Germany (15%), Italy (12%), Spain (11%), and United States (8%) (Japanese Ministry of Foreign Affairs 1993).


AGEC 4210: Group 4 - Chile

In 2001, Chile also received $40 million from the US in ODA (CIA Fact Book). However, this aid was not earmarked for agricultural purposes but was intended for the following institutional purposes: military and police aid; international narcotics control programs; sales of military supplies; training at the Western Hampshire institute of Security Cooperation (formerly the School of the Americas); interAmerica air force defence academy training and centre for hemispheric defence studies training (Centre for International Policy 2004) 7.3 – International Promotion of Chilean Products “Chile's agricultural sector (including forestry and fisheries products) now accounts for over 35 percent of total export earnings”. “Direct government support to export promotion was estimated at $10.4 million … and private sector contributions are estimated at $7 million” (U.S. Dept. of Agriculture 2004) In order to further promote their products on the world market, the Chilean government created PROCHILE. It provides information and trade leads to Chilean exporters; conducts trade missions in foreign countries and manages participation in international trade fairs. (U.S. Dept. of Agriculture 2004). PROCHILE operates 35 overseas trade offices, four are located in the United States alone. In addition, PROCHILE also operates 13 offices in Chile to provide local industry with improved access to the export market predominately in the developing countries markets (U.S. Dept. of Agriculture 2004).


AGEC 4210: Group 4 - Chile

8. Conclusions
As discussed in the introduction, Chile appears to be a model of modern economic development. The Chilean economic indicators (GDP, PPP, Employment, Income, Income/capita, Exports etc) all conform to an overall upward trend signifying growth and economic development. Where agriculture is concerned, Chile has managed to create a diverse and competitive local market for domestic agricultural production and consumption. This local market is productive, efficient and is able to meet demands surplus to Chile’s own agricultural requirements. Chile has developed strong domestic agro-industrial vertical and horizontal linkages to enable it to value add and export its surpluses, whilst adhering to the strict requirements of developed country markets. These surpluses have been achieved through the use of land enhancing technologies (technology, fertiliser and capital) and strong domestic institutional linkages. Chile has further capitalized on the developed country demands for agricultural goods, by devoting a percentage of its agricultural production to meet the demand for organic products. This is further evidence of Chile’s strategy of agricultural market diversification and strong institutional linkages in response to global agricultural demand for high value and value added goods.


AGEC 4210: Group 4 - Chile

However, much of this successful economic growth benefits only the large-scale to agricultural producer on while at the same and time are marginalizing the small-scale rural producer. Small-scale producers are unable compete efficiently the local market disadvantaged in terms of access to institutional linkages, credit and resources. These small-scale producers are unable to take afford expensive land enhancing technologies and as a result are entering the already competitive Chilean labour market. Wages are low and standards of living for individuals in the agricultural and low paying industrial labour markets are marginally better than what the UNDP would consider to be poverty. The HDI and per capita income for Chile conceal this fact by indicating a consistent increase since the Pinochet era in the 70’s. The reality however remains that income equality is in fact increasing and that many of the poorest folk in Chile are the smallscale rural producers. Many of whom have left their farms to reside in peri-urban slums surrounding the capital city Santiago in order to seek gainful employment. Chile has recognised that real growth requires not only strong export demand, but also strong domestic consumer demand. In order to achieve this goal, attempts are being made to institutionally incorporate the small-scale rural agricultural producer into the mainstream Chilean economy. Although there was some resistance to the ongoing institutionalization of the Chilean economy at the recent APEC summit held in Santiago. The authors of this paper believe it will not be long before Chile will be part of the group of developed countries.


AGEC 4210: Group 4 - Chile

9. Figures and Tables

Labour Force Distribution by Economic Sector (2000)
80 70 60 50 40 30 20 10 0 67.5


12 Agriculture




Figure 1: Chile Employment Data (World Bank Group 2002).

Figure 2: Income Distribution, 2000 (World Resources Institute 2004).


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Structure of the Economy (% 2003 GDP)
60 50 40 % 30 20 10 0 Agriculture Industry Services 8.8 34.3 56.9

Figure 3: Chile Economic Data (World Bank Group 2002).

Figure 4: Chile Growth of GDP (World Resources Institute 2004).


Land Cover

AGEC 4210: Group 4 - Chile

Dry Cropland & Pasture

Irrigated Cropland







Deciduous Broadleaf Forest

Deciduous Needle-leaf Forest

Evergreen Broadleaf Forest

Evergreen Needle-leaf Forest

Mixed Forest


Herbaceous Wetland

Wooded Wetland


Herbaceous Tundra

Wooded Tundra

Mixed Tundra

Bare Tundra

Figure 5. Map of Chile and various land covers (FAO 2004).

Snow or Ice

AGEC 4210: Group 4 - Chile

Fruit Livestock Crops Vegetables Forestry

Figure 6: A 1990-97 average of the main contributors to agricultural GDP (Vera 2002).

Figure 7: Chile’s major exports by sector as of 2002 (Agriculture and Agri-Food Canada. 2002b).


AGEC 4210: Group 4 - Chile

Figure 8: Chile’s major imports as of 2002 (Agriculture and Agri-Food Canada. 2002b).

Figure 9: Fertilizer use and resulting trends in per capita food production and Yields in horticultural products (World Resources Institute 2004).


AGEC 4210: Group 4 - Chile

Figure 10: Trends in Forestry products production and aquaculture production in Chile (World Resources Institute 2004).

Figure 11: Import and Export trade between Canada and Chile, 19952000 (Agriculture and Agri-Food Canada. 2002b).


AGEC 4210: Group 4 - Chile

Figure 12: Flowchart showing the structure of Chile’s Agriculture Ministry (Government of Chile).


AGEC 4210: Group 4 - Chile

Table 1: Chile – Selected Comparison of HDI Indicators (UNDP 2004).

Latin America Indicators HDI Rank Year 2002 Canada 4th Chile 43rd & Caribbean .. the World ..

Life expectancy at birth






Adult literacy rate (% ages 15 and above) (HDI) Combined gross enrolment



95.7% 88.6


ratio for primary, secondary 2001/02 95% and tertiary schools (%) GDP per (HDI) Human development (HDI) value index capita (PPP US$)






9,820 7,223




0.839 0.777


10. References


AGEC 4210: Group 4 - Chile

Agriculture and Agri-Food Canada (2002a) “Chile Country Profile Statistical Caribbean Agriculture and Agri-Food Canada. (2002b). “The Canadian Trade Commissioner Service Briefing Session: Agriculture and Agrifood.” Market information Latin America and Caribbean Armstrong, K. (2004). “Chile: A Guide to the 20th Century.” Historical Text Archive. op=viewarticle&artid=111 BBC (2004a) “Timeline: Chile, A chronology of key events.” BBC News, website. 905.stm BBC (2004b) 764.stm CAFOD - Catholic Agency For Overseas Development (2004). “Chile” CIDA - Canada International Development Agency (2001) “Canada Helps Chile Establish Crop Insurance Program” Duncan Fulton, Office of the Minister of International Cooperation. http://www.acdi“Country Profile – Chile” BBC News, website. Updates.” Market information Latin America and


AGEC 4210: Group 4 - Chile OpenDo Centre for International Policy (2004) “Just the facts: A Civilian’s Guide to US Defense and Security Assistance to Latin America and the Caribbean. CIA World Fact Book (2002) “Chile”. CIA World Fact Book (2004) “Field Listing – Listing Economic Aid Recipient.” FAO – Food and Agricultural Organization of the United Nations (2004). “Country Profiles and Mapping Information System” lang=en&iso3=CHL&subj=1 Guillen, D., Jank, M., Nogues, J. & Page, S. (2003) “The EU-MACUSUR Interregional Negotiations: Sanitary and Psytosanitary Measures and Other Obstacles to Trade” Government of Chile, (Gobierno de Chile), Ministry of Agriculture (Ministerio de Agricultura), Japanese Ministry of Foreign Affairs (1993) “Chile: Repúblic de Chile” 4.html


AGEC 4210: Group 4 - Chile

Mariqueo, R., Llanquilef, L. (1998). “Muchapes denounce the Chilean government at the human rights commission of the United Nations.” Commission on Human Rights United Nations. 54th session, item 16. Oxfam (December 2003) “Plant Collectors of Culenco.” Oxfam

International, Oxford England Schick, C.M. (date unspecified) “Strategic Alliance and Biotechnological Development: The Case for Table Grapes in Chile. Instituto de Investigaciones Agropecuarias Chile –INIA. IO_2004/Talleres-PDF/t18-PDF/t18-04.pdf Sustainable Chile, Toward a Sustainable Chile (Chile Sustentable) /POBREZAYEQUIDAD.doc UNDP - United Nations Development Programme (2004). “Human Development Reports: Chile” UNDP website. United States Department of Agriculture (1996) “Fresh Fruit Leads Chile’s Export Mix.” U.S. Dept. of Agriculture, Economic Research Service _12150923/print Report. Washington DC. http:/


AGEC 4210: Group 4 - Chile

United State Department of Agriculture Foreign Agricultural Service (2004) “Chile”. U.S. Library of Congress (1994). “Chile”, Electronic book text. Vera, R.R. (2002). “Chile: Country pasture/forage resource profiles.” FAO. Grassland and Pasture Crops. oc/Counprof/cile.htm World Bank (1997). “Chile - Poverty and Income Distribution in a HighGrowth Economy 1987-1995.” Report No. 1 6377-CH, In Two Volumes Volume 1: Main Report November 25, 1997, Country Management Unit - Argentina, Chile, and Uruguay Latin America and the Caribbean Region, Document of the World Bank. /25/000009265_3980217140030/Rendered/INDEX/multi0page.txt World Bank Group (2002). “Data and Statistics: Data by Country” The World Bank Group: Gender Stats: database of gender statistics. World Resources Institute. 2004. “Earth Trends: The Environmental Information Portal”.


AGEC 4210: Group 4 - Chile

World Trade Organization (2003) “Trade Policy and Review: Policy Statement Reported by the Chilean



Zivin, J., Hueth, B.M. & Zilberman, D. (1996) “Prospect for Chilean Agriculture Under NAFTA: Prepared for the Tri-National Research Symposium on NAFTA, San Antonio, Texas. Department of Agriculture and Resource Economics and Policy, University of California at Berkeley, CA


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