Chile's agricultural sector ranks fifth in terms of its contribution to the nation's economy, even though only 2.8% of the country's total area is under cultivation. Farms have consolidated and expanded in the past decade or so, with the average farm size in 1998 reported at 107 hectares, compared with 45 hectares in the early 1990s.
About 58% of Chile's agricultural output consists of grains and fruit, while animal production and forest products make up 29% and 13%, respectively. Fruit and forest products lead the list of export commodities, accounting for a total of 83% of all agricultural exports.
Wheat accounts for slightly more than 40% of total seeded area, and Chile through the 19th century was South America's granary. But wheat plantings have declined fairly steadily in the past 15 years.
One recent exception occurred in 1996, when area expanded by about 13% as producers responded to soaring world prices. Conversely, a 13% plunge in seedings in 1998 was attributed to severe drought. Although improved conditions led to slightly more planted area in 1999, the long-term trend indicates waning area dedicated to wheat.
The adaptability of Chilean farmers is reflected in this trend, as farmers, seeking more profitable alternatives to wheat, have shifted into forest products, livestock and produce. This switch has been based on rising grain production costs, especially for labor; the strength of the U.S. dollar, which affects the costs of grain production inputs; and the government's focus on encouraging greater agricultural exports.
In the past 10 years, the government's export-oriented strategy has been highly successful. In 1990, Chile's fruit and produce exports totaled U.S.$1.3 billion, forestry exports accounted for U.S.$856 million, and fishery exports totaled U.S.$510 million. Together, the three categories made up 31% of the country's total exports.
By 1998, the total value of exports in those three categories had increased to U.S.$6.5 billion, with fruit and produce exports reaching U.S.$3.1 billion. Even more importantly, the share for the three categories had increased to 44% of Chile's total exports.
In terms of domestic agricultural policy, Chile's leaders have focused on fostering competitiveness in the appropriate international markets and alleviating rural poverty. To that end, the government has encouraged public and private investment in irrigation improvements, soil development, technology and education.
Grains are freely traded in the private sector, with government market involvement limited primarily to establishing so-called "price bands," minimum and maximum import price levels that influence domestic market prices. Price bands apply only to wheat, wheat flour, rapeseed and sunflowerseed.
The wheat price band levels are determined by using a five-year moving average of U.S. No. 2 hard red winter wheat prices, f.o.b. U.S. Gulf, with a specific number of the highest and lowest prices eliminated. The remaining price series is adjusted to bring the price level to a "Santiago" basis, accounting for inland freight, discharge costs, trade commissions and financial costs. The calculations for these adjustments are not publicly disclosed.
For the 1998-99 marketing year ending in November, the price band floor for wheat was U.S.$198 per tonne, while the ceiling was U.S.$244. The 1999-00 price floor is U.S.$194 a tonne.
When the world price is less than the floor, wheat importers must pay a surcharge; conversely, when the world price is more than the ceiling price, importers receive a rebate. Rebates were put in place during the 1996 marketing year, but in the past few years, as world prices have moved to the lowest levels in decades, surcharges have been in effect.
Chile's domestic flour millers also are protected from imports by the price band system. The price band for wheat flour is calculated by multiplying the wheat price band level by a factor of 1.41, which in most years serves to keep wheat flour imports at a minimum.
MILLING INDUSTRY. Chile's per capita consumption of wheat for food use, although down from a peak of more than 160 kg in the early 1980s, remains among the highest in Latin America. Chilean Ministry of Agriculture estimates for 1998 put per capita wheat consumption at 136.5 kg, compared with 140 kg in 1990.
Chile's flour milling industry is known as efficient and well organized, consisting of about 100 commercial operations. Mill size varies from under 50 tonnes to more than 300 tonnes per day.
According to a recent report by the International Grains Council, Chile's flour production in 1997 was 1.133 million tonnes, about the same as in 1990. Flour production in the five years ending in 1990 averaged about 1.1 million tonnes per year.
Bread consumption has declined somewhat in recent years, but other wheat-based foods, such as crackers and biscuits, as well as fast foods, continue to gain in popularity. Greater urbanization, expanding disposable incomes, a younger work force and a larger number of working women have fueled trends toward consumer experimentation in the diet and increased demand for processed and convenience foods at the expense of more traditional staples such as bread and potatoes.
Breakfast cereals also have become increasingly popular in the past decade. Major cereal companies successfully have used in-store sampling to introduce shoppers to cereal, often in conjunction with promotions by the dairy industry.
Although the cereals market remains dominated by importers such as Nestle and Kellogg, domestic food manufacturers also now offer a variety of products. In addition to wheat-based products, demand for oatmeal, corn flakes and puffed rice is on the rise.
FEED AND LIVESTOCK. The meat and poultry industries in Chile are highly integrated, and the feed industry generally is made up of moderate-sized producers who operate their own feedmills.
Chileans traditionally have consumed beef, but in the past 10 years, demand for pork and poultry has skyrocketed. While per capita beef consumption between 1990 and 1998 increased by an impressive 29%, pork consumption in the same period advanced by 53%, and poultry meat consumption expanded by an enormous 188%.
Although Chile has become a beef importer, it has developed a domestic pork and poultry industry that meets market requirements. Indeed, hog populations and pork production have grown to the point that Chile exports pork to nearby Argentina and Brazil.
In the poultry sector, fewer than 10 major producers control more than 75% of the market. These companies are vertically integrated in their production, processing, distribution and marketing of poultry products. Because they are relatively new businesses, the companies are highly efficient with modern technologies.
Some 65% of the poultry industry's feed needs are supplied locally, and fish meal produced in Chile is a key source of protein in rations. Because of market competition, which tends to keep Chile's consumer prices relatively stable, changes in feed costs, especially for maize, have a major impact on profit margins. Maize is imported from the United States and Argentina.
TRADE. Given the Chilean economy's reliance on international trade, trade issues are of paramount importance. Liberalization and changes in tariffs have occurred over the years in conjunction with the General Agreement on Tariffs and Trade and World Trade Organization requirements.
Among the most significant policy developments in recent years was Chile's agreement in 1996 to establish a trade association with Mercosur, the South American trading bloc consisting of Brazil, Argentina, Uruguay and Paraguay. Under the association, tariffs and other restrictions on Chile's sensitive agricultural products, such as wheat and oilseeds, are being reduced over a 10- to 18-year period.
Although Chile is not a member of Mercosur, the association paved the way for greater access to the Mercosur market for Chilean products and vice versa. The association also means increased access to Chile's vital Pacific ports — and Asian market — for Mercosur members.
Other trade agreements were reached in the early 1990s with Mexico, Venezuela, Colombia, and Ecuador, and in 1997, Chile and Canada signed a trade agreement that phases out tariffs on wheat and flour over a 17-year period n.