Focus on Chile
October 01, 2008
World Grain Staff
Chile has a thriving grains sector despite having a limited amount of farmland. A strong grain industry is essential for Chileans, who eat more bread than almost anyone else and have a growing livestock sector that demands more and more feed grain. Although it is dependent on imports, Chile’s own agriculture makes a worthwhile contribution.
"Chile is one of the most stable economies in Latin America," Erik Ordonez, marketing manager at the Canadian Wheat Board, one of the biggest suppliers of grain to Chile, told World Grain. "45 to 50% of the economy is based on copper exports, but it also has diversified well, with things like wine and fruit
"They produce quite a bit of grain. In a good year they can produce 1.1 to 1.5 million tonnes of wheat. Not all the wheat they produce is suitable for milling. They import around 700,000 tonnes of wheat a year."
Even though Chile has less agricultural land than many South American countries, it has built an effective farm sector on what is available. "They’re 16.5 million people in a long narrow piece of land," he said. "Chile has been able to utilize every hectare."
In its latest report, the International Grains Council (IGC) put Chile’s wheat crop at 1.4 million tonnes in 2008, up from 1.3 million the year before. It predicted Chilean grain imports for 2008-09 at 2.8 million tonnes, up from 2.6 million. The IGC put Chile’s imports of wheat at an unchanged 900,000 tonnes in 2008-09. It forecast maize imports at 1.8 million tonnes for 2008-09, compared with 1.6 million the previous year. Chile is also expected to import 60,000 tonnes of sorghum, down from 90,000 the year before, and 100,000 tonnes of durum, up from 19,000 in 2007-08. It will also import an unchanged 700,000 tonnes of soymeal.
The most recent U.S. Department of Agriculture (USDA) attaché report on the grains sector in Chile, prepared by Agricultural Specialist Luis Hennicke and published in April, stressed the importance of wheat to Chile. "Wheat is politically Chile’s most important annual crop," it said. "There are an estimated 89,000 producers, of which a little over 10,000 producers are in the so-called subsistence group with little or no alternative crops." Of the remaining total, just over 70,000 are small farmers, 5,000 are medium-size producers and less than 3,000 are large producers, according to the report. It described how plantings had varied over recent years. Plantings for marketing year 2006 were reduced by abnormal weather, which meant farmers could not plant on time. "As a result, a large number of producers decided for alternative crops," it said.
The area increased for marketing year 2007 in response to increasing domestic prices. "Normal weather conditions during planting and harvest time in most growing areas, together with higher prices offered to producers for the coming harvest, are the main reasons for the important increase in planted area and production," it said. "But an important increase in prices for alternative crops like oats is the main reason for the lower-than-previously-estimated increase in total planted area."
A further jump in prices, in line with the wider international increase, led to a higher forecast for 2008 plantings. "But ignificant increases of fuel and fertilizers prices has increased wheat production costs to a point where farmers prefer lower-cost and less risky crops like oats, mainly in the Ninth (Temuco) and Tenth (Osorno ) Regions, where over 50% of the total wheat is planted," the report said.
HIGH BREAD CONSUMPTION
One striking feature of the Chilean grains sector is high bread consumption. "Chile has the second-highest consumption of bread in the world," said Ordonez.
"You have to look at the sources of starch," he explained. "They also consume a lot of rice, but mainly bread and pasta."
Types of Chilean bread include marraquetas, a type of French bread, and hallullas.
The attaché report said that according to the local bakery association, Chileans consume an average of almost 100 kilos of bread each per year, making them the second-largest consumers of bread in the western hemisphere after Germany. Consumption has been steady, in line with population increase in recent years.
The main use for wheat is milling, with an estimated 85% of total wheat supply going for flour. The attaché report put the total number of mills at 85. "Industry sources indicate that the wheat produced in Chile is, in general, of a lower quality than that required by the bread and pasta industry," it said. "It is mainly low in protein and the quality varies a lot."
Official statistics for this year are not available yet, but Ordonez predicted that 1.8 million tonnes of bread wheat and roughly 135,000 tonnes of durum would be milled this year. "They produce around 60,000 tonnes of a type of durum called Candial," he said. "It can reach up to 98,000 tonnes. They import 60,000 to 70,000 tonnes a year. They produce pasta from that."
There has also been an expansion in domestic feed consumption. "A fast growing salmon and trout feed industry has become an alternative outlet for some wheat producers who have no storage capacity and have to sell their wheat right after harvest," the attaché report said. US-CHILE FREE TRADE AGREEMENT
The U.S.-Chile Free Trade Agreement took effect on Jan. 1, 2004. By the release of a U.S. Trade Representative policy brief on the agreement in September 2007, the agreement had led to a doubling of total trade between the two countries, making the U.S. the top source of Chile’s imports and the main destination for its exports.
In 2007, according to the attaché, the U.S. was the biggest supplier of wheat to Chile, shipping 518,489 tonnes. The other big sources for Chile’s wheat imports were Canada, which exported 147,983 tonnes to Chile, and Argentina, which sent 413,095 tonnes to its South American neighbor. Total wheat imports were 1.9 million tonnes.
PRICE BAND SYSTEM
Chile introduced a price band system for wheat, wheat flour, edible vegetable oils and sugar in 1985. Under this system, which was designed to provide a buffer against fluctuating world prices, there were surcharges on imports. The system has come under challenge in the World Trade Organization, following a dispute presented by Argentina, and earlier this year the Chilean government proposed changes.
The price band is to be reduced by 2% a year until 2014, when it is to disappear completely under the free trade agreement with the U.S.
Chilean farmers have also expanded maize (corn) production in recent years because of higher prices and increased demand from the growing pork and poultry industries. However, the USDA sees no increase in maize area for marketing year 2009, expecting weather that would favor wheat.
The attaché predicted continued expansion in maize imports. "Argentina is the largest supplier of bulk corn to Chile, mainly because it continues to have cost/ quality advantages. The trucks are loaded directly on the farms and driven across the border to the consumer’s (in Chile) storage facilities, thus avoiding the unloading and loading of ships at the port and reducing total transportation costs," the report said. "But, since the import duty for Argentinean and U.S. corn became the same (zero%) in January 2006, Chilean importers have started buying increasing amounts of U.S. corn because of quality and reliability of supplies, as it was stated by industry sources."
Chris Lyddon is World Grain’s European editor. He may be contacted at: email@example.com.