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AGEC 4210: Group 4 - Chile

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

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AGEC 4210: Group 4 - Chile

Contents

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

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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

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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.

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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.

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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

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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, World
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

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AGEC 4210: Group 4 - Chile

developing countries (World Resources Institute. 2004). The


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).

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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).

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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.

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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.

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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).

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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.

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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).

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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.

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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 and Research for public and private
partnerships.

(Government of Chile)

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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.

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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.

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The modern education system has put an emphasis on


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

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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).

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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 capital-
intensive 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).

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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

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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.

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

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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).

25
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); inter-
America 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).

26
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.

27
AGEC 4210: Group 4 - Chile

However, much of this successful economic growth benefits only


the large-scale agricultural producer while at the same time
marginalizing the small-scale rural producer. Small-scale producers are
unable to compete efficiently on the local market and are
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 small-
scale 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.

28
AGEC 4210: Group 4 - Chile

9. Figures and Tables

Labour Force Distribution by


Economic Sector (2000)

80
67.5
70
60
50
%

40
30
20.5
20
12
10
0
Agriculture Industry Services

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

Figure 2: Income Distribution, 2000 (World Resources Institute


2004).

29
AGEC 4210: Group 4 - Chile

Structure of the Economy


(% 2003 GDP)

60 56.9

50
40 34.3
%

30
20
8.8
10
0
Agriculture Industry Services

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

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

30
Land Cover AGEC 4210: Group 4 - Chile

Developed

Dry Cropland & Pasture

Irrigated Cropland

Cropland/Grassland

Cropland/Woodland

Grassland

Shrub-land

Shrub-land/Grassland

Savanna

Deciduous Broadleaf Forest

Deciduous Needle-leaf Forest

Evergreen Broadleaf Forest

Evergreen Needle-leaf Forest

Mixed Forest

Water

Herbaceous Wetland

Wooded Wetland

Barren

Herbaceous Tundra

Wooded Tundra

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

31
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).

32
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).

33
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, 1995-
2000 (Agriculture and Agri-Food Canada. 2002b).

34
AGEC 4210: Group 4 - Chile

Figure 12: Flowchart showing the structure of Chile’s Agriculture


Ministry (Government of Chile).

35
AGEC 4210: Group 4 - Chile

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

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

Life expectancy at birth 2002 79.3 76 70.5 66.9

Adult literacy rate (% ages


2002 .. 95.7% 88.6 ..
15 and above) (HDI)

Combined gross enrolment


ratio for primary, secondary 2001/02 95% 79% 81% 64%
and tertiary schools (%)

GDP per capita (PPP US$)


2002 29,480 9,820 7,223 7,804
(HDI)

Human development index


2002 0.943 0.839 0.777 0.729
(HDI) value

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36
AGEC 4210: Group 4 - Chile

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AGEC 4210: Group 4 - Chile

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41