agricultural trade relationship: what can south africa learn from the chilean experience

Agricultural Trade Relationship: What can

South Africa learn from the Chilean experience

By

Bonani Nyhodo, Elvis Nakana, Heidi Phahlane and Louise KotzéWe acknowledge and appreciate comments made by tralac researchers!

What can South Africa learn from the Chilean experience?

Experience of what?

1. Agricultural prosperity!

2. Agricultural trade prosperity!

3. Improved socio – economic situation!

Vink (2009)

1961

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

0

5000000

10000000

15000000

20000000

25000000Agricultural exports

Argentina Australia ChileNew Zealand South Africa

US$

000

Chile exports started to increase!

Lessons

Targeted support to agriculture Create a structure of governance that support a clear vision Choose specific products and support them heavily Negotiate as many FTAs as possible – economic benefits

Wisdom or myth!

“if this be error, and upon me proved, I never writ, nor no man ever loved” – Sonnet 116 (William

Shakespear)

“Let them not make me a stone and let them not spill me.

Otherwise kill me” – Prayer before birth (Louis Macneice)

Levitt and Durbner (2006) – freakonomics: the hidden side of

everything Incentives are the core of modern life

The convectional wisdom is often wrong

Knowing what to measure and how to measure it make a complicated

world much less so!

Krattiger (2010) – misconceptions and myths that every genetic

resource IP and worth millions of rands.

Quoted - Aristotle arguing that “the soul never think without an image”

Public good is a good is free of charge – wrong!

Reality moves faster than ideology ▪ Then how about implementation?

Scope of the study

Policy evolution – both countries Overall trade profiles Agricultural trade profile – Chile Trade reconciliation Trade chilling The relative importance of the Chilean markets

Chile – trade policy (past 20 yrs)

Population - 16.3 million (growth rate 1.2%) adopted policies to boost competitiveness

Reduction of tariffs 6% (uniform approach)

Government expenditure on agriculture - increased tremendously Government support to agriculture is 4% of total farm receipt (PSE)

Govt - 75% of cost of new plantations in subsidised (forestry)

However,

Chile’s agricultural policy is regarded as liberal

Agriculture expenditure………….

Agricultural allocation increased by more than four folds over the

past 10 years.

Budget allocation

±60 percent of the total budget to agriculture • Irrigation programmes (on-farm investments),

• Productivity and skills devt programmes (preferential credit)

• Rural development exclusively aimed for the poor

Continues………….

± 40 percent is shared among programmes such as:• The soil recovery programme

• Research & development

• Extension & training

• Animals & plant health and standards

• Marketing and trade promotion

Outcomes!

Poverty reduced by 26% GDP growth rate averaged 5.6% - Agriculture 4% Chile diversified from 122 markets (2003) to 194 markets (2007) Agro-food exports have grown much faster than agro-food imports

South Africa trade policy (past 20 years)

Re-admission GATT/WTO Liberalisation - taking developed countries commitments (UR)

was is it good or bad? Deregulation of marketing board (single marketing channels) Abolishment of tax concession favouring agricultural sector

Reduction of tariffs – agriculture less than 6% on average Government support to agriculture remained at around 5% of

farm receipts (PSE) Government expenditure on R&D has decreased (ARC

budget) Share of agric allocation as % of total allocation remains less

than 1%

Trade reconciliation

To double check trade flows – reconcile trade data between

partners

Compare RSA reported export to Chile against Chilean

recorded imports from RSA or vise versa!

Convectional wisdom argues that the two rarely reconcile!

1. Imports are always greater than export

2. Imports equaling exports (rare)

3. Imports less than export (explanation need)

Reasons

1. Exchange rate (R or $)

2. Time difference (in recording)

3. Method of evaluation (CIF or FOB)

HS Description Chile imports RSA exports Difference

All All agricultural products 3.65 3.22 -0.42

090220 Green Tea 1.34 0.07 -1.28

200949 Pineapple Juice, 0.97 0.68 -0.29

200870 Peaches 0.27 0.17 -0.10

220870 Liqueurs And Cordials 0.24 0.92 0.68

210210 Yeasts, Active 0.22 0.00 -0.22

210690 Food Preparations Nesoi 0.20 0.00 -0.20

170490 Sugar Confection 0.13 0.21 0.09

130232 Mucilages/Thicknrs 0.06 0.03 -0.03

130219 Vegetable Saps and Extracts 0.03 0.03 0.00

Total of top 9 3.50 2.11 -1.39

Trade chilling

Where supply and demand do not meet (RSA and Chile) RSA export to the world (Supply potential) – proxy by high export values

(US$500 000 or more)

Chilean imports for the world (Demand potential) proxy by high import

values (US$500 000 or more)

RSA export to Chile - less than US$1,000 regarded as no trade

Chiles import from RSA - less than US$1,000 regarded as no trade

Results in the table to follow!

All values in USUS$ million

Chile MFN tariff

5 year average 5 year average 5 year average 5 year average

HSAgricultural products

Chile- World imports

Chile- SA imports

SA- World exports

SA- Chile exports

220421 Wine 6% 2.82 0.00 478.67 0.00

100590 Maize 6% 253.65 0.00 184.33 0.00

170199 Cane/Beet Sugar

6% 116.48 0.00 73.53 0.00

240120 Tobacco 6% 5.53 0.00 32.64 0.00

100190 Wheat 6% 154.26 0.00 32.11 0.00

100510 Maize seed 6% 16.30 0.00 29.35 0.00

030379 Fish, Nesoi 6% 2.04 0.00 28.46 0.00

230120 Flour Meal & Pellets

6% 35.59 0.00 17.86 0.00

220300 Beer 6% 11.65 0.00 17.64 0.00

200969 Grape Juice 6% 4.43 0.00 14.15 0.00

151219Sunflower seed/oil 6% 3.87 0.00 12.50 0.00

060310 Cut Flowers #N/A 2.14 0.00 12.37 0.00

520100 Cotton 6% 17.76 0.00 11.03 0.00

170191 Cane/Beet Sugar

6% 3.89 0.00 10.86 0.00

120220 Peanuts 6% 5.04 0.00 9.70 0.00

110812 Starch 6% 4.17 0.00 8.36 0.00

220830 Whiskies 6% 16.00 0.00 8.16 0.00

090240 Black Tea 6% 23.21 0.00 7.90 0.00

190531 Cookies 6% 7.68 0.00 7.87 0.00

151710 Margarine 6% 4.30 0.00 6.98 0.00

Export profiles

Chile is a major competitor of South Africa for the European and USA market

- agriculture.

Under AGOA and the TDCA South African products enjoy preferential market

access and Chile has been signing and negotiating FTAs aggressively.

Chile is South Africa’s competitor for the EU and USA market.

Chile is increasing its prominence in these markets

HS Description (CHILE)% Share of total agric exports (2008)

220421 Wine 10.04

080610 Grapes 8.44

030429 Fish Fillets 4.95

080810 Apples 4.82

030419 Fish Fillets 4.75

HS Description (SOUTH AFRICA)

% Share of total agric exports (2008)

 220421 Wine 9%

 080510 Oranges, Fresh 8%

 100590 Maize 8%

 080610 Grapes 6%

 080810 Apples, Fresh 4%

Export destinations!

Rank (RSA) CountryShare of Total agric exports

World- 100

1 -EU 27- 39.37

2 Zimbabwe 7.38

3 United States 4.71

4 Mozambique 4.45

5 Zambia 3.65

Rank (CHILE) Country % Share of overall

imports in 2008

World 100.00

1 EU 27 25.07

2 United States 22.37

3 Japan 10.86

4 Venezuela 5.30

5 Mexico 4.75

Are these countries trading?

Yes! The relative importance of agricultural products of South Africa to

Chile. The top ten Chilean imports from South Africa (see the table to

follow) Account for 14.60% of Chilean imports (agric products) from RSA The leading product is green tea imports (US$1.34 million)

Green Tea - ranks number as a source of Chile’s imports Therefore this presents an opportunity for South Africa to expand its

prominent - market

HS DescriptionShare of RSA’s exports of these products (%) 2008 (US$m)

090220 Green tea 36.77 1.34

200949 Pineapple juice 26.48 0.97

200870 Peaches 7.53 0.27

220870 Liqueurs and cordials 6.56 0.24

210210 Yeasts 6.17 0.22

210690 Food Preparations 5.54 0.20

170490 Sugar confection 3.43 0.13

130232 Mucilages/thicknrs 1.60 0.06

200791 Citrus fruit 1.03 0.04

130219 Vegetable saps and extracts 0.89 0.03

  Total imports from RSA- 2008 (million US $) 3.65

  Percentage of Total Imports 14.60%

Conclusions

Targeted support to selected agriculture products Choose specific products and support them heavily Negotiate as many FTAs as possible – economic benefits Create a structure of governance that support a clear vision

Thank!