Chile’s competitive advantages

Chile is a leading producer and exporter of a wide range of high-value crops, with its southern hemisphere location enabling harvest at times when few regions of the world can provide fresh supplies. Chile’s key features supporting competitive advantages in agriculture include:

• Deeply competitive agricultural industry position—Chile has key competitive advantages in crop production and export, including its southern hemisphere location, infrastructure, human capital, and production scale.
• Global market access—Chile has free trade agreements with over 90% of the world’s economy, and exports are a strategic priority for the government. The country’s overall economy is export-oriented, providing strong benefits to the agricultural sector. Chile plays a leading global role in exporting products to China, the United States, the European Union (EU), and Latin America.
• Favorable legal and political institutions—Chile’s democracy is ranked favorably by international institutions and has adapted to meet the needs of a population that erupted into protests in the fall of 2019, with the drafting of a new constitution under way as of spring 2021.
• Natural resources—Chile’s land, water, range of latitudes, and geographic isolation from pests and disease help increase crop prices and help keep input costs lower.
• Macroeconomic climate and currency—Chile has among the strongest credit ratings and most stable currencies in Latin America.

Chile’s competitive advantages in agricultural production include natural resources, logistics, infrastructure, and government policy. Trade and logistics infrastructure, supported by Chile’s wide range of export sectors, facilitate the cost-effective, reliable, and timely movement of goods from producing regions to key ports and onward to global customers, with major producing regions within 150 miles of the coast. Transportation advantages versus other southern hemisphere producers into North and South America combine with significant tariff advantages from free trade agreements in these markets as well as major markets in Asia and Europe. Growing bargaining power of Chilean exporters engaged in supply contracts with foreign buyers reflects product quality and reliability. Development of supporting industries, including machinery and crop chemicals, has encouraged price competitive inputs, and product innovation.

Chile’s agricultural subsidies are limited, just 2.7% of farm cash receipts in 2019 compared with the Organisation for Economic Co-operation and Development (OECD) average of 17.8%. Chile’s policies generally create minimal market distortion and are mainly aimed to improve the productivity and competitiveness of small-scale farmers, with more than 50% of budgetary allocations to the agriculture sector spent on general services, mainly directed toward infrastructure, research and development, and inspection services. This leads larger farmers to compete based on market conditions and incentivizes innovation to adapt with new technologies and varieties to maintain competitiveness. While direct subsidies are low, developing commercial agriculture is a strategic priority for the government given the sector’s important contribution to the country’s overall GDP and rural employment. Chile features a well-educated agricultural workforce and a more developed university system compared with most of Latin America. The government also supports the creation of public-private partnerships to vertically integrate farmers to markets. A strong emphasis is placed on water access and use, specifically irrigation. Over 20% of the public budget allocated to the agricultural sector is invested in irrigation infrastructure.

Macroeconomic overview

Chile has a small population (19 million), ranked 65^th globally, yet with a large land area (743,000 kilometers, slightly larger than Texas) relative to its population, and Chile’s annual GDP of US$245 billion in 2020 was comparable to New Zealand. Over the past 25 years, the country’s GDP and GDP per capita have grown faster than neighboring countries, and it’s regarded as one of the easiest places to do business, according to the Heritage Foundation. Chile was designated a high-income country by the United Nations in 2013, and 2019 GDP per capita was US$14,896. Since 2008, Chilean GDP (in current USD) has grown at an annualized 4.4%, slightly lower than Uruguay (6.3%) and comparing favorably with Brazil (1.9%). Chile’s GDP per capita has been growing at a similar pace, at 3.6% over the period.

Extensive copper reserves and the mining sector are a key component of Chile’s economy, accounting for 20% of its GDP and 50% of exports by value. Leading imports include petroleum and vehicles and, in recent years, Chile has run a trade balance near parity. With free trade agreements with countries representing nearly 90% of its global GDP, Chile has excellent commercial access around the world. Despite recent volatility due to social and political change, as well as the COVID-19 crisis, the Chilean peso remains one of the most stable currencies within Latin America, which is reflective of a commodity-producing, export-oriented country, and relative to other developing countries, demonstrates more moderate changes in value.

Given its small population, domestic demand is limited, making Chile’s agricultural sector export-oriented: over two-thirds of Chilean fruit production is exported, and agricultural products are the second-largest export category after copper. The Chilean government has focused on liberalizing trade as an economic growth driver and Chile has free trade agreements with 65 countries representing 90% of the world’s GDP, with an average tariff of 1.8%. Free trade agreements cover all the major fruit and tree nut destination markets, except for Russia, which enables Chile to compete in distant markets where it lacks transportation advantages. With the majority of crop production exported, most revenues for Chilean agricultural production are generated in U.S. dollars.

USD per currency of major emerging-market agriculture exporters (Index 2006=1)

Source: Macrobond, March 31, 2021.

Investment risks

Investment in Chilean agriculture faces multiple risks related to its business environment, and specifically to the agriculture sector. There are country risks relating to economic growth and currency, the pending new constitution, social reforms, and regulatory and tax changes. Within the agricultural sector, Chilean producers face risks common to producers globally, including crop yields, prices, water and labor availability, and costs. Major risks to investing in permanent cropland in Chile include the enactment of laws that could modify the availability and cost of labor and future macroeconomic trends centered on the price of copper. If global demand for copper declines, prices could deteriorate, leading to pressure on the country’s economy.

Current political, social, and economic environment

Chile has a favorable legal and political climate for investment, ranking 25 out of 179 countries on the Transparency International 2020 Corruption Perceptions Index and 19 out of 178 countries on the Index of Economic Freedom from the Heritage Foundation. Chile ranks 5^th among the principal agricultural production countries in the World Economic Forum’s “Global Competitiveness Report,” behind the United States, Canada, Australia, and China, and 33^rd globally.

In late 2019, Chile experienced extensive social unrest with demands for increased public services, larger pensions, and lower-cost education. Chile has among the highest income and education inequality in the OECD, and a public referendum in October 2020 was overwhelmingly passed, with 80% of voters choosing to write a new constitution to replace the 1980 constitution written under the dictatorship of Augusto Pinochet. A constitutional convention comprising Chilean citizens was elected in May 2021, and the completed constitution will face a scheduled referendum vote in 2022. The Constitutional Convention is expected to create fundamental reforms in areas such as public services while helping retain elements that have enabled Chile to have the highest credit rating of any country in Latin America.

Chile real GDP, annualized change (%)

Source: Macrobond, March 31, 2021. 

Chile during the COVID-19 crisis

Chile enacted swift and strict controls to mitigate the spread of COVID-19, which led to a sharp contraction in the economy in Q2 2020 before stabilizing in Q3 through to Q1 2021, when an extensive vaccine program should also support the pace of the economic recovery. Another major driver for Chile’s economic rebound was China’s recovery from the virus: China was the only major global economy to register positive economic growth in 2020. The rebound in China and other global economies led to rising global copper prices and increased copper exports in Chile during the second half of 2020. At the end of Q1 2021, the price of copper was 78% higher than at the end of Q1 2020, and Chilean copper exports were 46% higher in Q1 2021 than in Q1 2020.

Copper price in the S&P 500 Index and quarterly Chile copper exports (US$B)

Source: Macrobond, March 31, 2021.

Chile farmland market

Chile agriculture overview

Chile’s geography and climate offer distinct advantages for agricultural production, as it’s one of the world’s few regions with a Mediterranean climate ideal for high-value fruit and tree nut production. Chile’s length enables long production windows counterseasonal to the northern hemisphere, allowing producers to receive crop price premiums in the early and late seasons when supply is low and prices are high. Bordered by the Pacific Ocean, Andes Mountains, Atacama Desert, and Antarctica, the location makes it difficult for pests to enter the country. While water is scarcer in some of the northern climates, it’s more abundant in the southern portions of the country, fed by runoff from the Andes as well as significant levels of rain. Chile is the largest southern hemisphere exporter of fruit and walnuts and competes with Argentina, Australia, New Zealand, Peru, and South Africa in fruit and tree nut export markets. Of the country’s 76 million hectares (ha), 2.1 million are cultivated, with 1.3 million ha used for annual and permanent crops and the balance for forage or fallow.

2018 Chilean cultivated land use (hectares)

Fruit and tree nut areas totaled 321,590 ha in 2018, up from 249,544 ha in 2008, a 3.5% compound annual growth rate (CAGR). Five crops make up 55% of the fruit and tree nut area: grapes (15%), walnuts (12%) apples (11%), cherries (9%), and avocados (9%). Vegetables, led by sweet corn, lettuce, and tomatoes, totaled 69,845 ha. For comparison, with 388,350 ha of fruits, tree nuts, and vegetables in Chile, California has 1.7 million irrigated ha of these crops. Over the past 10 years, the fastest-growing crops were hazelnuts, walnuts, cherries, blueberries, mandarins, and avocados, while other crops remained flat to gradually declining (apples, table grapes). Table grapes were one of Chile’s first major permanent crops oriented to export markets; however, the market has matured, and Chile now faces increased competition from Peru. Permanent cropland represents about 20% of total agricultural land, and we estimate a market value of about US$13 billion across 350,000 ha.

Productive area of selected permanent crops in Chile (hectares)

Agriculture makes up 3% of Chilean GDP and 24% of exports, making it the country’s second-largest source of exports after copper. Including food and beverage processing, agriculture is 8% of the economy. Chile is the largest southern hemisphere fruit exporter, and its fruits make up 38% of farm production, followed by livestock at 21%. Production agriculture, excluding other portions of the value chain, employed 774,000 people in 2019, 9% of the total Chilean workforce. Including agribusiness, the employment total is closer to 20%, and agribusiness accounts for 57% of Chile’s manufacturing output.

In 2018, Chilean agricultural exports totaled US$18 billion (24% of Chile’s total exports). Fresh fruit and tree nut exports were the largest category, followed by wine and processed fruits. For comparison, 2017 agriculture exports from California were US$23 billion. Chile’s agricultural export value grew at a 7.4% CAGR from 2000 to 2018, with exports to China driving the growth. After growing at a 19.4% CAGR from 2000 to 2018, China surpassed the United States and became the top export destination for Chile’s agricultural products. 

Top Chile agricultural export destinations (US$B)

Source: ODEPA, March 24, 2021.

2018 Chilean agricultural exports (US$1,000 FOB)

Source: “2019 Panorama de la Agricultura Chilena,” ODEPA, as of March 31, 2021. Free on board (FOB) assumes a no-charge delivery to the buyer's destination.

Chile is the world’s largest exporter of table grapes and cherries and is a top five exporter of apples, walnuts, and almonds. 

Chile’s global rankings in major permanent crops 

Source: USDA PSD Online, March 26, 2021. MT refers to metric tons. 

From 2000 to 2017, Chilean fruit and tree nut export volumes grew at a 2% CAGR. Most of the growth occurred from 2000 to 2009, with relatively stable levels thereafter. 

Chile fruit, vegetable, and tree nut exports (million MT)

Source: USDA PSD Online, March 26, 2021. MT refers to metric tons.

Chile’s sustainability and responsible investing environment

Both Chile’s government and the agricultural sector have taken steps toward enhancing the environmental and social contribution of agriculture, aligning with broader global and national goals around sustainability. Key areas include soil health, organic production, water availability, climate change, and diversity.   

To meet increased demand for sustainably produced products, Chilean agriculture has adopted increased soil conservation practices and increasingly certified cropland as organic. Chile’s Ministry of Agriculture administers a soil conservation and restoration financial incentive program, SIRSD-S. Farmers submit proposals and compete against other growers for funding for activities that enhance soil health and improve farm sustainability, with an average of 151,000 ha funded each year from 2011 to 2018. In Chile, organic agriculture includes 113,000 ha total as of 2019 (up from 80,000 in 2014), including more than 14,000 ha of permanent fruits and tree nuts, with organic exports reaching US$274 million, up from US$217 million in 2015. Fruits, nuts, and vegetables tend to have organic crops making up a greater share of global production compared with annual row crops such as grains and oilseeds.

Within the tree fruit sector, the leading trade association, ASOEX, has established the Guide of Good Practices for the Sustainability of the Chilean Fruit Industry, including aspects of food safety, respect for the environment, corporate social responsibility, and economic sustainability. More than 90% of the tree fruit orchards use localized irrigation (such as crop and micro sprinklers), rather than prior flood irrigation approaches. ASOEX has also coordinated the training of more than 264,000 workers since 2000 in areas of food safety, pesticide use, and good farming practices. Finally, ASOEX invests in local rural communities, notably through school and home construction following earthquakes in 2010 and 2015.

With the Andes Mountains receiving moisture from the Pacific Ocean, Chile has among the largest freshwater resources in the world (922 cubic kilometers annually), ranking 14^th globally and 5^th in Latin America. In Chile, water is a basic right protected by federal laws. The 1981 Water Code, augmented and updated in 2005, established water basins with tradeable water rights. To meet the needs of providing water to the full spectrum of the country, including agriculture, Chile is evolving, from water code reforms to increased funding for water infrastructure to incentives for adoption of water efficiency technology.

Chile’s approach to climate change includes a national commitment to reducing the intensity of its carbon dioxide (C0₂) emissions (30% reduction by 2030 from 2010 levels), increased use of renewable energy, and reforesting 100,000 ha of land. Joining global climate change mitigation efforts, Chile is a signatory to the Paris Agreement on climate change. In 2016, the latest available data, the agriculture sector accounted for 10.6% of the country's greenhouse gas emissions, at 11,802 kilotons of C0₂ equivalent, with methane from the livestock sector making up 56% of all greenhouse emissions. As Chile faces and adapts to climate change, its span across latitudes and healthy water availability should provide resiliency, with the potential for the gradual movement of crop types southward.

Chile includes nine indigenous groups that represent nearly 12% of the country’s population, and the country has incorporated minimum levels of participation in the 2021 Constitutional Convention for indigenous populations. Recognizing rights of indigenous communities is an important part of agriculture investment in Chile, as the country's agriculture sector includes 49,000 indigenous-owned farms covering 1.2 million ha. The new Chilean constitution is expected to add recognition of indigenous rights, which will likely contribute to the overall stability and growth of the country, and 2020 demonstrations in the south of Chile highlight the pressing need for reform as a benefit to all citizens.

Key Chilean crops

In Chile’s diverse permanent crop sector, several key crops have the scale, competitive position, and growth opportunity that make them especially suitable for long-term institutional investors. The largest permanent crop in Chile—the grape sector, for both wine and table grapes—is in a period of transition. Collectively, wine and table grapes account for 42% of the country’s permanent crop area. One of its first major export fruits, grapes were aggressively developed in the 1980s and 1990s and remain a staple crop in Chile; however, at this time, the grape industry has matured and is confronting slowing global demand growth. Chile also faces increased competition in export markets, especially from Peru. These pressures have led to squeezed margins and encouraged shifting to other crops that offer higher current profits and greater growth potential. The redevelopment of current vineyard land and water resources to crops with more rapidly growing demand and where Chile sustains greater competitive advantages is a major growth opportunity, as many of Chile’s grapes are in some of the most prime climates in the country.

Looking forward

Chile plays a leading role in the export of high-value fruit, nut, and vegetable crops globally. As global incomes rise, consumers are seeking higher-quality foods and enhanced nutrition. While the country faced internal political changes as well as the COVID-19 pandemic in 2020, Chile's agriculture sector remained one of the world’s top suppliers of high-value crops. Its political climate in 2021 will be guided by the process of writing the new constitution, which could lead to substantial policy shifts in terms of government services and water rights legislation. As the country seeks more equitable access to economic and social opportunities for all Chileans, the overall open market economy aspects of free trade and openness to investment are expected to continue. The drivers that underpin Chile’s competitive advantage in producing and exporting high-value crops will further enable development in growing markets as global demand grows, and Chile is poised to supply sustainably produced foods.

To read the complete report, including deep dives by crop type, click here.