Agricultural Trade Relationship: What can South Africa learn from the Chilean experience

1. By Bonani Nyhodo, Elvis Nakana, Heidi Phahlane and Louise Kotzé We acknowledge and appreciate comments made by tralac researchers! Agricultural Trade Relationship: What can South Africa learn from the Chilean experience

2. What can South Africa learn from the Chilean experience? Experience of what? • Agricultural prosperity! • Agricultural trade prosperity! • Improved socio – economic situation!

3. Vink (2009)

4. 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

5. 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)

6. 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!

7. 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?

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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%

16. 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! • Imports are always greater than export • Imports equaling exports (rare) • Imports less than export (explanation need)

17. Reasons • Exchange rate (R or $) • Time difference (in recording) • Method of evaluation (CIF or FOB)

19. 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!

21. 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

23. Export destinations!

24. 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

26. 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

27. Thank!